Game Theory of YBX

High-level rational decision making with YBX tokens and the YieldBlox protocol.

When is the YieldBlox Protocol most efficient?

A user can take do five actions with YBX tokens to maximize both the value they receive from the protocol and the value they add to the protocol. The more participation within YieldBlox, the better it is for all parties involved. These actions are highlighted in the Five Levels of YieldBlox Productivity, the effects these actions have on the protocol and the benefits they have can be illustrated with game theory.

The five actions a user can do with YBX (simplified):

  • Sell (-)

  • Hold (+)

  • Escrow (++)

  • Escrow + Vote + Borrow (+++)

  • Escrow + Vote + Borrow + AMM (+++++)

In the above list, anything from "Hold" and below is seen as a positive outcome (increasing in benefit as one goes down the list), and "Sell" is a negative outcome. The positivity of these actions takes the following goals into mind: users want to profit, the protocol wants high liquidity to repurchase and sell YBX easily through its escrow fee and default protection functions, and the protocol and users want to minimize YBX selling pressure to ensure the default protection system is effective. Each user wants the most positive outcome for them and the protocol.

Let's say there are two users who both have YBX. Their matched action strategies are described here:

If they both claim YBX and do nothing with it (hold), it is seen as a positive outcome (1,1). The protocol still functions as it is supposed to, and users still get their YBX for lending or borrowing. Therefore, the protocol would see the base positive outcome of (1,1) (1 +1 = 2).

If both users escrow their claimed YBX, a more positive outcome (over just holding YBX) occurs (2,2). This has the same benefits of holding, but escrows gain more benefits. Users escrowing their YBX for veYBX may earn interest for escrowing since they could receive YBX issuance and possibly a portion of protocol fees. These actions result in the second positive outcome of (2,2) (2 + 2 = 4).

If both users escrow their claimed YBX and vote on YieldBlox governance proposals, the third positive outcome occurs (3,3). Both users still receive the rewards of escrowing YBX for veYBX, and the protocol is now guided by their decisions, allowing them to increase their control and allocate YBX incentives where they see fit. This results in a even more positive outcome for the users, (3,3) (3 +3 = 6).

Now let's say both users escrow and vote, but they also utilize automated market makers to escrow AMM shares on YieldBlox. This is the maximum positive outcome for all parties (5,5). Not only do the users gain their share of protocol revenue, but they also get to claim trading fees from the AMM shares. This is also beneficial for the protocol, as it provides the maximum possible liquidity for any protocol YBX repurchase operations. The most positive outcome occurs if both users use this strategy, (5,5) (5 + 5 = 10).

When both users sell, the most-negative outcome occurs (-5,-5). This is detrimental to the protocol and users. The protocol's repurchase and governance mechanisms do not function as well, and users will not be able to claim the benefits of escrowing YBX, vote on governance proposals, or receive AMM trading fees. If this outcome occurs, the total benefit score is -10.

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