I did a little write up about $YFI/yearn.finance sometime in the summer of 2020 and shared it with the Zee Prime team. The proliferation of food emoji coins and the incessant copying made me anxious. The situation reminded me a quote from Manias and Mimesis:

“While genius is rare, the demand of the credulous will always be met by a healthy supply of fraud”.

So I publicly called it out.

I have never published the essay because who is interested in crypto archetypes? Since many are now taking part in the sacrificial ritual of killing the divine king and are not aware of it, I thought it could be interesting to unveil the witch hunt.

This is an updated version of the original essay.

The Curious Case of $YFI

On July 17th Yearn Finance was launched and the early participants were rewarded with returns exceeding thousands percentages within days. Investing in the $YFI token that accrues value generated in Yearn and might have been “the fastest 100x in crypto ever“.

A king was born and with it a meme of a “fair launch”.

The unaudited and underfunded project took the market by surprise and overshadowed similar VC-backed projects in the space. It also won the hearts of the community; those who participated in the early upside and those who would like to participate in the future upside.

Is $YFI the future of (decentralized) finance? In terms of its functionality it certainly is an interesting “fintech”, in terms of reflexivity it can be anything the observers with substantial financial means make it on a scale from “a game” to “redefining finance”.

Is there a better tech out there? Possibly. But if the power of $YFI meme grows with a substantial momentum, the developer continues in delivering reliable technology and gets rewarded with more memes – the flywheel goes up. And then, the price becomes a meme:

$YFI origin story makes it a perfect Girardian candidate with the founder being an extreme insider and an extreme outsider. Notice the extremely delicate balancing act being a God and being a victim. Andre Cronje could become the Elon Musk of DeFi.

Peter Thiel (via Blake Masters) describes this phenomenon (see Figure 1):

“People start out being different. They are nurtured to develop their already somewhat extreme traits. Those traits become more important, and they learn to exaggerate them. Others perceive that inflated importance and exaggerate in turn. The founders thus end up being even more different than they were before”.

Figure 1 (source: https://blakemasters.com/post/24578683805/peter-thiels-cs183-startup-class-18-notes)

Notice the forces of reflexivity at play. Andre started out as special and with $YFI price surging he is becoming divine. He does not sleep. He does not eat. He only deploys.

And tests in prod.

Girard And The Scapegoat

For those unfamiliar with Rene Girard’s scapegoating let me give you a TL;DR.

Since the start of the DeFi craze the memetic element dominated: people believed what others believed because they imitated the desires of others. The hype created a meme that the price of $YFI will flip Berkshire stock and so on. Then suddenly chaos ensued because the narrative was not sustainable.

In such moments of chaos people turn against each other. Girard believed that they have devised a violence mitigation strategy. Violence of all against all is not sustainable. Thus they unite in a subconsciously navigated act of sacrificing the divine king; a violence of all against one.

Scapegoat is representing sins of everyone involved. He is “the other” but must emerge from within the group; the extreme insider and outsider. A witch hunt ensues. Killing the witch cleanses the community from the sins and restores order.

The mechanics I am describing are not new to crypto as the industry has seen them before. It was these previous cases of ritual sacrifice that united the community in times of the bear market. This led me to believe that Andre Cronje is the next in the lineage of the divine kings.

Satoshi, Vitalik and Andre as Divine Kings

Vitalik Buterin was the scapegoat of the last crypto bubble. He was the king that was supposed to lead us into the promised land of the world’s computer and many got burned. Vitalik’s Etehreum was the kingdom for a while and it served as a catalyst for the bubble. The ICOs got bigger, people got richer and the community was thriving.

The ICO bubble popped. People were pitted against each other by the underlying social dynamics. Then the crypto community united itself in a sacrificial scapegoating of Vitalik and $ETH. In the process of spewing hate against the founder the value accrual of $ETH was questioned. $ETH has died only to be resurrected in the next cycle.

What we see today is not Ethereum as the world’s computer of 2017 but as a vehicle for DeFi/Open Finance. The narratives are changing for Ethereum, similar to Bitcoin, allowing these highly reflexive objects to survive beyond their individual bubbles.

Figure 2: Narratives of Ethereum (source: Felipe Gaúcho Pereira):

In words of Woody Belangia:

‘The accusation has been pragmatically justified by its predicted effect — the pollution having been purged, the society is now restored to health. Post hoc, ergo propter hoc.’

In the summer of 2020 someone worthy emerged. It was Andre Cronje. Sadly, he was crowned king and sacrificed within three months. DeFi narrative is getting weaker each day. Short ETH thesis are emerging even among the most bullish of all.

With tons of freshly printed money in the game and so little gain on total crypto market capitalization people cannot believe it is over. And it would be indeed premature to assume this was the peak of the long-awaited crypto hype.

Closing Thoughts: King Wanted

The promise of optimistic rollups and other scaling solutions people hope that the limits of ETH-centric DeFi craze will continue. That is a possibility. Although DeFi still has untapped potential it may be the DeFi beyond Ethereum that will be a catalyst of the next bubble.

Ethereum has cleansed itself from the world’s computer narrative to take on a form of DeFi/Open Finance. This time it may be DeFi narrative cleansing itself from the limitations of Ethereum. This has happened before as crypto cleansed itself from Bitcoin (or the other way around, depends on where you stand).

Figure 3: Narratives of Bitcoin (source: Visions of Bitcoin by Nic Carter)

“Bitcoin not crypto.” And that is true. Bitcoin itself (perhaps even Satoshi) was the scapegoat when disillusionment set in after each individual bubble. Bitcoin has been resurrected many times and its narrative continuously reframed.

We can say that Bitcoin has sacrificed many of its own narratives and personas embodied the respective narrative (see Figure 3). The last one being “an uncorrelated asset thesis” that died with liquidated positions on BitMEX. However, with the recent developments around MicroStrategy and Square; a potentially powerful narrative of world’s reserve asset might be forming.

To sum it up:

1. Andre & $YFI are the scapegoat.
2. Andre has been sacrificed so that DeFi/crypto could live.
3. DeFi may not be finished just yet, look beyond Ethereum.
4. Bitcoin has its own narratives (but the reflexivity involved might interfere with prices of other cryptoassets).
5. Be on the lookout for the reflexive tornado: watch the cash and wait for the narrative.

The preference state of mind and belief state of mind are melting into a one shapeless mass as one dominates the other. Pumpamentals become the fundamentals.

The king is dead, long live the king!

Disclosure: This is not investment advice. Zee Prime Capital holds $YFI and positions in Ethereum and non-Ethereum DeFi projects and will continue to do so.