Yearn.Finance Review: A High Yielding DeFi Protocol

UTC by Osaemezu Ogwu · 7 min read
Yearn.Finance Review: A High Yielding DeFi Protocol
Photo: Shutterstock

Learn more about Yearn.finance, a relatively unknown lending aggregator that became one of the most popular digital currencies and the most expensive cryptocurrency, surging past $27,000.

Yearn.finance established a protocol with the vision of providing the maximum annual percentage yields (APY) for cryptocurrencies owned by its users. The protocol (YFI) is unique in the sense that the company gives the token holders control of all the governance rights, with over $200 million of assets currently locked in the protocol. This has made YFI a hot commodity and has made scores of people scrambling for a piece of the cake.

The Brains Behind Yearn.Finance

Yearn.finance was founded by Andre Cronje, a somewhat reclusive character and a one-time rogue programmer. He studied law at Stellenbosch University but dropped out after three years to pursue a computer science program at the CTI Education group, completing a 3-year course in less than a year. He has worked in several finance and crypto institutions like Lemiscap, Kosmos Capital, CryptoCurve, and so on, utilizing his wealth of experience to develop Yearn.finance.

Cronje became a crypto enthusiast and recognized that he had to simplify fully automate yield farming processes to make high yield profits. He carried out tons of research and analysis in the crypto market, and the high returns offered for stable coins in decentralized financial protocol piqued his interest.

This sparked a desire to invest extensively in these protocols and transfer the investment funds into the platforms with the highest annual percentage yields manually. In developing a program that would switch between DeFi protocols to increase yield, he discovered that he could increase the productivity of the market and make it public. In that light, yEarn token was created in collaboration with Curve Finance and Aave.

He made Yearn.finance largely for yield optimization, and it was achieved by borrowing and lending assets to the highest percentage value. To simplify the process, he codified the program. It allowed it to automatically switch between the different yield providers at the time and made it open for users to deposit and withdraw funds.

Cronje spent $42,000 building yEarn and about double the amount on audits and hosting and remarkably would not take some of the equity for himself as the founder even when he was more than $20,000 in debt; he preferred to farm the token himself as any other user would. In his words:

“Yearn itself is a profit-generating system. It’s been profitable since day one, and it’s been able to recoup any of the expense I’ve needed and that is why I didn’t feel any need to assign any token when I was happy to play by the same rules as everyone else.”

All You Need to Know About Yearn.Finance

Yearn.finance is an array of decentralized finance (DeFi) protocols concentrating on creating a simple and effective way to generate high-risk adjusted yields for depositors of several assets through lending protocols, liquidity pools, and community governed protocols on Ethereum.

The concept of Yearn.finance is to produce optimum yield on users’ investments through the automated movement of funds between DeFi lending platforms like Aave and dYdX to yield a maximum amount of annual percentages. Users of Yearn.finance can earn both lending fees and trading fees on the platforms by integrating the yTokens converted from the tokens deposited by the user, through the introduction of an automated market maker (AMM) between yUSDT, yTUSD, and yDAI.

What is YFI Cryptocurrency?

YFI is simply a governance token available to the Yearn.finance ecosystem. It is designed and used solely on the Ethereum platform (ERC-20). YFI can be earned from liquidation with yTokens, and the fact that it cannot be pre-mined, or was ever allocated to the founder as equity, gives credence to the belief that it is one of the most decentralized tokens currently on the market. The maximum amount of YFI stands at a paltry 30,000, and it has all been distributed within the ecosystem.

The YFI was created to make the governance of the system solely community-owned.

It turned out that the community disagreed with this notion, seeing the current value of YFI, and it can now be traded on Uniswap and other platforms.

In a bid to increase the influx of liquidity into the Yearn.finance ecosystem, YFII is being developed; this token has a maximum amount of 60,000 and will be distributed over three months.

Core Products

  • Vaults: they are community-developed yield mining robots that follow a specific roadmap to reduce the risk of investing and maximize profits.
  • Earn: They act upon the designs of the yVaults and earn profits by automatically switching funds between lending platforms.
  • Zap: This tool enables the user to switch between various stablecoins and an array of interest-bearing stablecoins. Users could also save on gas fees by either zapping directly in or out or curve pools from the base assets.
  • Cover: this has mostly to do with insurance as the yInsure protocol provides insurance against financial loss for various smart contracts and product offerings underwritten by Nexus Mutual.

How Does Yearn.Finance Work?

Yearn.finance is pretty easy to comprehend than other DeFi platforms; it involves the movement of funds from one asset pool to the other (Compound, Aave, and DyDx). These funds move from the asset pool with the least generated APY to the most, thereby increasing the yield. Other stablecoins like DAI, USDC, and USDT can also be used.

The stable coins deposited by the user are converted into yield optimized tokens known as yTokens. These funds are then automatically moved between Compound, Aave, and dYdX dependent on the pool with the highest yield.

A particular percentage is deposited in the Yield.finance pool, giving a return in yCurve (yCRV). This y(CRV) allows the user to trade their accumulated funds in the yield.finance pool for governance tokens in the Yearn.finance ecosystem. The user can earn YFI cryptocurrency this way. A

nother way to earn YFI is by depositing a 98% – 2% mix of DAI and YFI into the balancer pool to earn balancer tokens (BAL). The BAL tokens are then deposited into yGov to get YFI. A third option is also viable. It involves depositing a combination of YFI and yCRV into Balancer to exchange for Balancer pool tokens, which are deposited into yGov to get YFI tokens.

The Yearn.finance community is structured so that the inventiveness of members is encouraged and rewarded. Anyone can propose a new plan. If accepted by the community, the member who proposed the strategy gets a portion of the interest generated whenever any person’s protocols in Yearn.finance are utilized. Users can also monitor ongoing YIPs through the official twitter handle of Yearn.finance or yEarn governance forums.

Conclusion

The journey of Yearn.finance has been nothing short of spectacular, becoming the most expensive cryptocurrency with a value currently above $30,000; it has brought the stance of DeFi to a whole new level due to its functions and capacity to operate with other existing DeFi protocols. The stability of the price of YFI is also a big plus as prices are determined by the number of locked assets in the Yearn.finance protocol pools.

The vision of Yearn.finance to make the platform a community-operated one is also a welcome development as it gives the users more power and control over their assets, with an impressive ROI and excellent risk management, Yearn.finance is sure to interest both existing users and potential investors.

We hope this is just the first of many innovative advancements of the DeFi niche in the nearest future.

Share:
guides
What Is Direct Public Offering (DPO)? April 16th, 2021

The guide provides information on a Direct Public Offering (DPO) – a type of offering in which a company offers its securities dir...