Yes, you read that correctly. UMA, the decentralized financial contract platform, released its third synthetic token – the yield dollar, yUSD. Additionally, UMA decided to add liquidity mining incentives for LPs that provide yUSD liquidity to the yUSD/USDC Balancer pool. Let’s break down this product.
Without going into too much detail, the yield dollar is a token that represents a zero-coupon bond. yUSD-SEP20 settles to $1 (the target asset is USD) on September 1st, 2020 (target date), and backed by ETH (current collateral). At the time of expiry, the yield dollar is directly redeemable for $1 worth of collateral.
The UMA team released a very helpful piece that walks through yUSD.
yUSD can trade above or below $1 depending on the market. In normal conditions, yUSD should trade at a discount before expiry, as the difference represents the “lender’s” (buyer of yUSD) interest rate. With that said, as the UMA team put it, “an extraneous market force” can distort market conditions. Liquidity mining is one of these forces.
Backing up a few steps, let’s look at why