“Understanding the Yield Credit & its valuation”
Recently i came across a defi project called yield coin.Now this project is very interesting for me because it is entirely driven by community and it is already gaining decent traction in small period of one month with around 350k usd worth of loan already given. Plus i believe in transparency as i think “transparency brings growth”.This project is damn transparent .Right now i have been focusing on small projects which has higher potential of going 100x. Defi is a market which will be ever growing(like internet)i guess and actually defi is the area which really focuses on the blockchain’s real world use cases.
There is a very different kind of mechanism in this project and i have no idea how they came up with this project but i think it is pretty cool. I m not saying that this is where you should invest as it will be up to you only as “Even in great companies if you don’t buy at fair price you can lose money”-Benjamin graham , and that is what happened to people who invested in bitcoin(bitcoin is nor a company nor yield) in 2017 at 20k usd .All i m saying is that this is an interesting project and we should keep an eye on it as this project is literally allowing anyone to borrow any token with any collateral and when people wanna borrow a random token with random collateral then they will have no option but to use this platform and yes of course this is damn early to say anything but there is some potential as i think crypto market will have the instagrams,facebooks,googles and amazons of finance in the future.
So Yield has initial supply cap of 624k coins with an inflationary mechanism. Now their inflationary mechanism is something which i so far haven’t understood completely but i am working on it and i will come to conclusions soon.But yeah it is hard to value something when you don’t know the supply and i don’t but i don’t invest in anything until i am not entirely sure of what the value is. I see lot of poeple gambling in crypto market and one of the main reason is that they don’t want to spend time on finding the true valuation of the project which requires deep understanding of the project and its tokenomics.
One of the major things which caught my attention was people are willing to pay 5% a month to borrow and make collateral in their liked tokens. Now this shows some kind of monopoly already which is a sign of growth. I mean when you look at aave there is maximum of 30% borrowing in APY in TUSD as of writing this article.This token is really trying to empower people by allowing them to lend and borrow at their favorite lending rates in their comfortable tokens of lending.
Coming to Valuation of Yield
Now this is the most difficult part of any project and without coming to the conclusion of valuations you shouldn’t invest as price will always follow value. Well, this is my philosophy and i will always stick to it. Of course one can pay a little premium price on the good project but problem is that people pay too much premium and then they lose money. So sticking to valuation is the key and identifying if the project’s current valuations are undervalued or overvalued in crypto market is for those who are truly passionate about investing in crypto.
So as i talked with one of the admins in the telegram,he said that the token burn with around 300k usd worth of loans given is 1% which leads to burn of around 3000 usd per month. Now i am also assuming that atleast 0.5% of the loan given(apart from burn) will be staked to get discounts. So now total of 1.5% of the loan given is roughly the usecase/income/profit/burn/stake whatever you name it is the usage(people will dump the token once they repay the loan). 1% token burn of total AUM is generally the rule of all Defi apps like Enzyme.
So valuation comes to around 3000*1.5*12 months*10 years= 600k usd.
But wait there is a huge catch.
What you really came looking for starts now.
In just 30 days period the growth of the platform is around 650% so if they continue the same for next one month then the valuation becomes around 4 Million usd and if they carry the same growth for second month then the valuation becomes around 24 million usd…. so with this growth rate just after 2 months this project becomes massively undervalued. As of writing this article the project is already trading at 24 millions usd valuation. So valuation of this project depends massively on the growth rate so i will still wait for couple of months to make sure that this projects continues the current growth because i wanna invest in such massively undervalued things which will give me 10x returns easily.
In the end i will leave you guys with the yield calculator which i highly recommend to play around with and if you loved this article some claps would be appreciated.