The year 2020 is a defining one for DeFi with Yearn Finance as one of the picks of the crop. In contrast to what we have in centralized institutions, all transactions can be carried out transparently on DeFi. It allows cryptocurrency investors to lend, borrow, and trade in a decentralized way.
With all the DeFi hype around us, there are certainly those that have caught our attention due to the value they provide or the services they render. In this guide – Yearn Finance explained – we will be discussing what is about this DeFi protocol that caught users’ and investors’ attention since it was launched on 17 July 2020.
Whether you are new to crypto or an ardent follower, you can find here key points about the highest APY (Annual Percentage Yield) generating DeFi in the market.
Introduction to Yearn Finance – What It Is?
So, Yearn Finance is what we can call an Ethereum based yield accumulation protocol with the goal of maximum APY on your investments. Yearn Finance is also known as yEarn and it uses other DeFi platforms like Compound, dYdX, etc. to boost lending of tokens. Explaining Yearn Finance in brief means spreading your investments to various parts of the DeFi economy to seek the best ROI.
On the part of Yearn Finance, they went about demonstrating to users and investors alike that what they have on hand is a truly decentralized protocol. The company shunned ICO, pre-mined tokens, and let users be the bane of the platform.
This brings us to the brain behind the whole project. Andre Cronje, who according to reports single-handedly built the platform, made Yearn Finance about maximizing yield returns for investors and allowing users to find the best possible return for their funds.
Explaining How Does Yearn Finance Work
The Yearn Finance app constantly monitors crypto lending platforms and automatically rotates your investment between these platforms depending on the return each platform has to offer. As simple as it sounds, sophisticated automation is what makes life easier for users seeking to invest their funds in Yearn Finance.
So, instead of manually depositing and withdrawing funds from lending platforms like Aave, Yearn Finance does that for you and makes sure that your funds are sent to the platform with the highest return. The following cryptos are presently supported on the protocol:
So when you invest in one of the stablecoins on Yearn Finance DeFi, the protocol changes it into the Yearn Finance token known as yield optimized tokens, also called yTokens or YFI. This yToken is then moved from one lending platform to another automatically based on high yield. The transaction fee for the whole operation is relatively small and this is sent to the pool to which just the holder of YFI has access.
As with other DeFi protocols, YFI serves as the governance token on the protocol through which the Yearn Finance community participates in the governance of the protocol. Any proposal will only be considered when it meets the threshold of 33% of YFI holders in agreement. To be clearer, your YFI reserve determines how much sway you will have on the making of decisions on the protocol.
What are the Mechanics of the Yearn Finance Token (YFI)?
Yearn Finance tokens can be seen as a reserve where you can send or withdraw your money. As Yearn Finance’s Andre Cronje explained, the Yearn Finance smart contract analyzes the APR when you send or withdraw your assets from the YFI reserve.
The Yearn Finance founder refers to the protocol as “APR Oracles” that standardize on-chain data to seek out the highest yield in the market. The automated smart contracts then transfer your funds to where it should be for a high return.
Let’s break down all the complex English so far. For example, if you deposit USDT into the USDT pool, the APR oracle will seek out which protocol has the highest APR. So, if it finds out that it is Compound then the smart contract diverts the USDT token to Compound where the investor now earns a high yield on his money.
When another USDT deposit comes in, the APR oracles checks again. If it discovers that the game has changed and Compound no longer has the highest yield but Curve this time around, the smart contract will automatically withdraw the funds from Compound and deposit it Curve.
Now as we mentioned earlier, the YFI serves as the governance token on the platform but that is not the only purpose it serves. The only way to get a share of the total supply of 30,000 YFI is to either trade for it on exchanges or you can add to the liquidity pool on any of Yearn Finance’s products.
How to Earn With Yearn Finance – Explained
As a way of providing earning opportunities to the Yearn Finance community, the vault is introduced as a quick means of building and using the best and most secure yield farming robot built by the best hands in the market.
The fees are relatively cheap with the withdrawal fee a mere 0.5% and a fee of 5% on extra yield when the harvest function is used. The profits you earn depends on the amount contributed to the pool and it is distributed on a pro-rata basis.
There are different yVaults with nine of them available for you to deposit your tokens. We have USDT, DAI, YFI, TUSD, crvBTC, TUSD, crvBUSD, ETH/WETH, yDAI+yUSDC+yUSDT+yTUSD tokens supported for the nine yVaults.
When you deposit any of the tokens mentioned, they are sent to their corresponding yVaults. The tokens are utilized for yield farming based on the existing market opportunities. yVaults execute a continuous strategy of buy and hold, which is supervised by a controller. This strategy allows the buying of extra tokens of the deposited token using the profit generated.
There is a product on Yearn Finance called earn. So, how does this product works and how do you gain from investing in this product? The product serves as a lending aggregator that continuously seeks the biggest yield for supported coins on the Yearn Finance platform. The coins include USDT, wBTC, USDC, sUSD, and DAI.
Earn achieves its aim by constantly moving your deposited coin from one lending protocol to another, which is Ethereum based. If you deposit USDT into the yUSDT pool, Earn will send your deposit to any of these lending protocols – dYdX, Compound, and AAVE – depending on the one with the highest return.
It will constantly shift your deposit between these protocols depending on the changes in ROI ensuring you are earning maximum return on your investment always.
This part of Yearn Finance allows you to swap different assets between yield-bearing pools back and forth. You can effortlessly swap different tokens. The tokens that you can zap into the curve.finance pools include BUSD, DAI, USDC, TUSD, and USDT. You can also zap out the tokens to get stablecoins. You can also swap back and forth between DAI and ETH on zap.
This product is a cover for the smart contract, which Nexus Mutual underwrites and it requires no KYC to get. Cover has three main parts, which are Covered Vaults that keep assets that the holder of yInsure wants to be covered. The next one is Cover Vaults that keep assets that can be utilized to make payment should there be a claim.
The last part is Claim Governance that stands for the process of claim arbitration. The participants in the yInsure include the Cover providers that funds the cover vaults, Cover holders that make specified payments to get cover for their covered vaults, and the claimants who are those that have approved claim and can receive payment on their claim.
Future Yearn Finance Platforms With Earning Potentials
There are currently six more platforms on offer from Yearn Finance that are in development. We will discuss some of these platforms as well as look into how you stand to benefit from some of them.
This platform lends out stablecoins to you with up to 1000 times leverage, which is why it is called a leveraged stablecoin exchange platform. There are currently four stablecoins accepted as collateral and they are BUSD, USDT, USDC, and DAI. You can deposit any of the four mentioned then get another one on margin. You have the 75x, 100x, and 1000x leverage tiers.
Again, let’s break down the complex English. This unique offering allows you to carry out arbitrage trading on stablecoins whose value is not fixed to a dollar.
Let’s assume the USDC is fixed to $1 but due to price fluctuation sometimes traded at $1.1 then you can deposit another stablecoin say BUSD as collateral to get as much as 1000 times your collateral in USDC token. You will be able to sell the USDC at $1.1 then use the funds to buy back the stable coin you borrowed at the pegged rate of $1 and pocket the profit from the price difference.
Given that stablecoins often sway from their pegged price, this unique platform from Yearn Finance can change the DeFi market substantially through arbitrage trading.
What Are Delegated Funding DAO Vaults?
We have what we call decentralized autonomous organizations (DAOs) and these DAOs can apply for funding through Yearn governance forum. YFI holders get to vote on which DAO can get funding from the DAO vaults.
For DAO to qualify for funding, they will have to create a Gitcoin Grants page to apply for funding. Off-chain voting is conducted once a DAO garners sufficient interest from the yearn community. If the DAO scales through the voting then it is allowed to join the DAO vault ecosystem.
There is a credit limit for the DAOs in the DAO vault ecosystem and governance set these credit limits, which can be either yearly, monthly, or weekly. Approved credit can be repaid on terms provided by the DAO and it can be repaid in collateral options available on Yearn Finance including tokens.
This is a new platform still in the pipeline of development seeking to bring a combined form of three key DeFi architecture. The three are Automated Market Maker, Minting synthetic debt, and Decentralized lending platform.
When it is launched you will be able to deposit your assets as collateral to get a stablecoin USD credit (minting synthetic debt) then you will be able to use the credit given to borrow other assets (decentralized lending platform). After which you can now exchange or swap borrowed assets for other available assets in the pool (Automated Market Maker).
Is Yearn Finance a Good Investment?
Yearn Finance is rapidly becoming a DeFi Goliath.
Yearn has built an incredibly strong reputation in DeFi since they launched at the start of 2020.
It’s vaults initially actively moved investors’ funds between yield farms, maximizing returns while minimizing risk. The platform then moved to incorporate many other strategies interacting with lending platforms like dydx, Aave, and Compound.
Now Yearn Finance is a broad ecosystem containing just about every decentralized financial tool around, and it’s getting bigger by the day.
But what about the platform’s governance token, is YFI a good investment?
The backbone of an impressive range of financial products built by the best developers in the space, the YFI token was already a clear market leader and a certified DeFi ‘blue chip’.
But in the last few days, Yearn Finance has been on a warpath, merging and integrating with a different DeFi project almost every day. The ecosystem has expanded vastly and is now worth an estimated $1.2 billion. The bigger Yearn grows, the more valuable the YFI token becomes. If you’re already asking ‘should I buy YFI?’ you might want to read on.
Track all projects that have combined forces with @iearnfinance to form a bigger DeFi behemoth, now at a total market cap of $1.2 billion
— CoinGecko (@coingecko) December 2, 2020
YFI is now ranked 34th with an $842m market cap a token price of $28k and a fixed supply of 30,000 tokens.
Yearn Finance’s incredible reputation for quality and integrity in the DeFi space has attracted eyes from across cryptocurrency, and projects across the space are desperate to get involved. The platform has given rise to a range of new phenomena, including the Andre effect, where ‘degens’ blindly ape into anything Yearn founder Andre Cronje puts online, knowing it will likely see up over 100x returns whatever it is. This has led to several incidents, as the smart contract genius famously tests in production.
Yearn Finance is becoming a DeFi giant.
But what does this mean for the YFI token? Should you invest in Yearn Finance token now? And what do these aggressive moves mean for this nascent space’s core value of decentralization?
Will Yearn.Finance Reach $100,000?
Yes, according to Longforecast, YFI could surpass the $100,000 mark to settle at around $150929 by the end of 2021. By 2025, YFI could reach as high as $315257 if the positive uptrends continue.
Understand Yearn Finance Token (YFI)
YFI is Yearn Finance’s governance token. There is a fixed supply of 30,000 meaning that there is no inflation. Yearn received praise from the industry for their fair distribution of the token, and core developers turned down the chance to receive a large share of the asset.
Core developers have repeatedly stated that the governance token has zero value, as currently, developers have all the power to choose the platform’s future. YFI holders do however receive a revenue stream from the ecosystem’s products.
With Yearn Finance rapidly becoming a DeFi monstrosity, YFI holders could in the future receive a highly significant return on their investment today.
Yearn Finance: Rapid Expansion
Yearn Cleans Up the Pickle
It all started when a newly deployed Pickle jar was hacked, with an attacker leeching $20m of users’ funds. Pickle is an emerging yield farming community with a sub $20m market cap, so the loss meant it was likely game over for the project. A few hours after the incident it was announced that the Pickle devs had been in a ‘war room’ call with key white hat developers in the space, including developers from Yearn Finance. They managed to replicate the exploit and secure the platform.
The incident brought the two teams together, but it was a total shock to the community when the next day Pickle and Yearn Finance announced a merger . Pickle devs now create strategies as Yearn vaults, and the Pickle token will be used in the Yearn Finance ecosystem to boost rewards.
We all thought the Pickle merger was huge news. Little did we know it was just the beginning.
Just a couple of days later Yearn Finance announced that they were also merging with Cream, a lending and borrowing platform with a $28m market cap at the time of writing.
The move directly provides the Yearn ecosystem with a key piece of the DeFi puzzle that it had till then been lacking. The cream will unlock something truly exciting for the industry: leveraged yield, allowing farmers to double down on their return.
Next Yearn Finance announced a merger with Cover, a newly launched permissionless protocol that allows DeFi users to gain protection for their risky investment and farming strategies, all without requiring KYC (know your customer)
By this point, it was starting to get ridiculous. The Yearn Finance integration with Akropolis provides the Yearn ecosystem with business development expertise and access to their institutional client network.
The most recent move was the largest of all, integrating with Sushiswap. Sushiswap is an AMM (automated market maker) based on Uniswap, allowing DeFi users to swap between Ethereum tokens in one transaction at the click of a button. The project has a $266m market cap and sees $156m of the daily trading volume.
It was announced that Sushi’s core developer 0xMaki would lead Yearn’s AMM ambitions. 0xMaki has done an incredible job of rapidly building out Sushiswap’s offerings, clearing the project’s name after a less than ideal incident with the initial founder.
Since the announcement Yearn Finance core developer Banteg has joked on Twitter that there will be a new merger every day till Christmas.
— ツ (@WrongNebula) November 30, 2020
It really does feel like the project is unstoppable, and the bigger it gets, the more power its reputation and brand carries. Every integration adds developer expertise and resources, with Yearn tapping into the tokenomics and resources of each project in different ways.
Nobody knows what we’ll see next, but we know for sure Yearn is on a clear path to DeFi domination.
A Threat to Decentralization?
There’s been some talk in the community that Yearn’s expansion is threatening DeFi’s decentralization, its most fundamental virtue. This is most likely a narrow view that misses the essence of these moves. Merger and acquisition, the two main words used to describe what’s been happening have clear connotations in traditional finance that do not apply to what’s happening at Yearn. Read more about Andre’s analysis of how limiting these words are here. For the most part, every project involved will retain its own autonomy, including governance, tokenomics, and brand identity.
A close look at all the goodies that the Yearn Finance app has to offer will make you see why this coin that is more scarce than bitcoin is ranking so high in the market. Yearn finance coinmarketcap ranking stands at number 35 on the list with a price of $22,767.86 as of November 28, 2020. The coin has given investors a serious return on their investment since the protocol was launched.
With the series of products that are still in development, Yearn Finance looks good to continue on its upward trajectory. It has set a new standard in the DeFi market when it comes to ROI and it looks like that it will continue to attract adoption on new levels among users.
By now you’re probably thinking ‘Should I buy YFI today?’
The Yearn Finance ecosystem is a blackhole, drawing DeFi projects in towards its heart. But why does that make YFI a good investment?
With every integration the Yearn FInance ecosystem’s developer expertise, total value locked, and reputation grows. Each merger has brought new possibilities and financial tools, which will attract more and more users to the platform.
The larger Yearn Finance grows, the more revenue goes to the YFI token holders, and the more demand there will be for YFI. But with a fixed 30,000 supply getting properly involved may soon become an option just for whales. As the central piece of the rapidly expanding Yearn Finance ecosystem, the YFI token is possibly the investment of the century. So if you’re asking should I buy YFI, the answer is most likely yes.
What seems like passion for Yearn Finance founder has turned into a highly rewarding global phenomenon with an ever-growing community around it. Now when you read this simplified guide to Yearn Finance, you should be able to make a better-informed decision concerning using or investing in any of Yearn Finance products.
Those sleeping on the unstoppable Yearn Finance expansion may soon regret the missed opportunity.
Disclaimer: The information in this article is for educational purposes only. Please do not treat it as investment advice. Do your own research.
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