Cream Yearn Finance and the Iron Bank. How Big the Iron Bank Can Grow?
Cream Finance and Yearn Finance have announced the Iron Bank (Cream V2). Named after the infamous Game of Thrones bankers from the Isle of Bravos, the Iron Bank is a revolutionary upgrade to the DeFi borrowing ecosystem.
What is Cream Finance?
The amount of things that start clicking together when you stop thinking about separate system, and instead systems as a whole integrating, is honestly amazing. Lending is such a powerful and underutilized tool. The things we can do with it in defi are about to get scary
— Andre Cronje (@AndreCronjeTech) January 16, 2021
Cream Finance is a DeFi lending and borrowing protocol. DeFi, (otherwise known as Decentralized Finance,) is a rapidly emerging ecosystem of financial tools built on the Ethereum blockchain. There’s already over $20 billion of value locked in DeFi protocols, and many who are paying attention to space are predicting this open network will replace the existing traditional finance infrastructure.
DeFi lending and borrowing protocols like Cream allow anyone with an internet connection to safely lend their assets to earn interest or take out a loan themselves. All without needing to trust a centralised middle man.
Cream currently manages over $408m of assets, but the governance token that manages the protocol has a market cap of just $23m.
Investing in Cream may present a huge opportunity for those who understand the protocol. But how can we be sure that Cream will be one of the successful DeFi protocols in such a competitive space? Cream originally came from Compound, and protocols like Aave are managing over $3 billion and have a market cap of $2 billion.
The answer lies within the core of Cream Finance’s Iron Bank, which is the integration of Cream Finance with the Yearn Finance ecosystem.
— Andre Cronje (@AndreCronjeTech) January 14, 2021
Cream and Yearn Finance
While protocols like Compound and Aave are clear leaders in the space, Yearn Finance has one of the best reputations in DeFi with exceptional developers. Yearn was initially tackling a different segment of the ecosystem, focused on giving investors high yield with automated farming strategies. You simply need to deposit your funds, and the vault will manage your money, farming for the highest possible yield across DeFi and meaning a high APY.
In this sector, Yearn is uncontested. And as most investors are looking to actively farm with their assets, Yearn has built a dominant reputation in the wider DeFi ecosystem.
But yield farming wasn’t enough for the ambitious Yearn ecosystem. The developers turned their focus outwards and sought to dominate in not just farming, but also the decentralized exchange market, decentralized insurance, and decentralized lending and borrowing.
Rather than beginning from scratch, Yearn managed to use their incredible reputation to merge with protocols already providing these services. For decentralized exchange, they partnered with Sushiswap. For insurance, Cover protocol, and for lending and borrowing, Cream Finance.
Yearn took these existing protocols, applied their expertise, and integrated them into their own platform.
Now Yearn Finance is set to command a huge DeFi market share, providing everything a DeFi user needs under one roof.
How these partnerships worked was different for each protocol, but what happened with Cream is the most exciting of all the mergers.
The Iron Bank / Cream V2
There are no new tokens associated with The Iron Bank / CREAM V2.
All value in the network from to CREAM V1 (https://t.co/Hr6S4Fqodo), CREAM V2 (https://t.co/sMFalg5Pf1) will accrue to $CREAM and its ecosystem partners in the @iearnfinance ecosystem. https://t.co/ApBpdtE03B
— Cream Finance 🍦 (@CreamdotFinance) January 14, 2021
Shortly after announcing the partnership, it was revealed that Cream and Yearn would work together on a new project, initially called Cream v2.
There were few details to start with, but we now know that v2, now called the Iron Bank is one of the most game-changing upgrades in DeFi pushing the boundaries of capital efficiency.
The Iron Bank bridges connections between DeFi protocols, providing credit lines directly to other protocols.
Usually, to borrow money in DeFi you need to pay down some money as collateral. When every user is anonymous, this is the only way to make sure the loans get paid back.
The Iron Bank changes this completely. Because protocols are smart-contracts, developers can see exactly what they will do. Iron Bank will allow these protocols to borrow money without paying down any collateral, because they know that the protocols can be trusted. You can think of this as a credit line in traditional finance, greatly increasing the efficiency of decentralised finance.
Only verified protocols can participate, to maintain high security.
DeFi protocols can use these borrowed funds to earn money for their users. Incredibly up to 90x leverage will be possible for stablecoins like USDC or TUSD, and up to 80x leverage for ETH.
Imagine owning 1 ETH, but earning farming rewards as if you had 80 ETH. When DeFi yields can be far higher than 50% APY, sometimes in the hundreds, this presents a huge opportunity for users.
The Iron Bank is game-changing for DeFi. While existing lending protocols like Compound and Aave may already manage billions of dollars and have billion-dollar market caps, the Iron Bank from Cream and Yearn provides a far superior service.
But what does this mean for the CREAM token? If Cream manages to gather a similar amount of assets in its protocol, its market cap will likely rise to these levels. That’s because whoever holds the CREAM token has full control over the protocol. Those with influence can decide what assets to add, what fees to take, and in fact, choose to direct these fees to the CREAM token itself.
CREAM tokens will likely capture value from the protocol, and the larger the protocol grows, the more CREAM holders will earn.
We’ve already seen this play out with Sushiswap, who also integrated with Yearn. The Sushiswap exchange is now doing billions of dollars of volume, and SUSHI token stakers are earning as much as 20% of all the fees.
Iron Bank looks set to attract a huge amount of capital to the Cream protocol, and the bigger it gets, the better it will be for the CREAM token. At just a $23M valuation today, Cream may present one of the best DeFi investment opportunities at this moment in time.
How Big the Iron Bank Can Grow?
The Iron Bank from Cream and Yearn Finance provides a huge upgrade to the DeFi ecosystem, and will likely attract a huge amount of capital as protocols look to provide theory investors with a competitively high yield. We’ve seen that DeFi users are not sentimental, and will shift protocols to gain higher yield in an instance. The insanely high APY possible with the borrowed funds from Cream Finance’s Iron Bank will likely see a huge capital sink.
This is good news for the CREAM token, which has full control over the protocol.