What Is Yearn Finance: A Detailed 4-Step Guide on the DeFi Powerhouse
Yearn Finance is a gateway for a set of Decentralized Finance solutions, powered by the Ethereum blockchain, that allows one to maximize your investments through lending aggregation, yield-generation, and insurance. The revolutionary YFI can be seen as the first step towards a secured and better investment in the DeFi. While volatility seems to be the most consistent characteristic of the overall cryptocurrency market volatility, its effect on the YFI token seems undeniably low.
The following article explores what Yearn Finance is, the basics, and how you can use it.
Tl;dr – think yield farming on autopilot.
1. What is Yearn Finance?
Essentially, Yearn Finance allows users to automatically get the highest yields on several DeFi platforms. Like we mentioned before, Yearn Finance runs on the Ethereum blockchain and provides lending aggregation, yield generation, and insurance.
It’s maintained by a series of independent developers while being governed by YFI holders. It was developed by Andre Cronje, a well-known cryptocurrency expert with extensive knowledge in mobile development and distributed systems. Prior to dedicating his time to developing Yearn Finance, Cronje was a Head of Technology for several companies where he started grasping blockchain and cryptocurrencies. After that, he dove deep into this technology and performed roles as advisor, engineer, analyst, and consultant for a series of companies such as CryptoCurve or Kosmos Kapital and projects such as FUSION foundation or Fantom Foundation.
Yearn Finance comprises four core products that function together seamlessly to enable a smooth running of the protocol and enable users to gain on their investment:
Vaults: A passive-investing tool that automatically generates yields through capital pools;
Yinsure: A KYC-less insurance policy for smart contracts;
Zap: A tool that allows you to swap in and out of certain liquidity pools;
Earn: A lending aggregator that continuously searches for the best interest rates.
2. Highs and Lows of YFI
To better understand the Yearn Finance of today, let’s take a look at its history.
Initially, Yearn.Finance was created by Cronje with the goal of allowing investors to find the best yield for their investments in a practical and automatic way. Its native token is called YFI and acts as a governance token concerning voting and decision-making on the protocol.
YFI was listed on Coinbase Pro on the 11th of September of 2020, and four days later it was ready to be used for trading. Coinbase described Yearn.Finance as a decentralized platform with the automated functions of aggregated liquidity and marketing movement of providers’ funds between platforms like dYdX, Aave, and Compound.
The surge of YFI is one of the more unexpected coin booms in recent cryptocurrency history.
Just four days after its listing on Coinbase Pro, YFI’s price grew from $32,382 to $41,381. This burst in per-token price met with Bitcoin’s price at around $43,966.
Experts concluded that the explosive burst of YFI might be related to its union of strong technical, new products, yield farming, and the growing popularity of DeFi liquidity pools.
The DeFi and Yearn Finance communities look towards its products such as Vaults, Yinsure.Finance, and “StableCredit USD” to further push the network (and price) forward.
3. The evolution of Yearn Finance
The Yearn Finance protocol started under the name of iEarn and it was built single-handedly by Andre Cronje. The protocol suffered an attack in 2020, which led to the founder taking time off the platform following an outcry from the project’s community.
This attack basically exploited the fact that Cronje tests his software in a “live” environment. This allowed a user to “lose” more than $400k via slippage in Curve Finance, but it also allowed his friend to step into the scene with large pockets and reverse the slippage. This then resulted in a small loss for the first user mentioned here and a small profit for a third user. Even if a lot of people were suspicious, the attack was not as damaging as it could have been.
In any case, he came back to the protocol and the project was rebranded to Yearn Finance.
The rebranding also resulted in the introduction of new products on the platform such as Vaults, StableCredit, yInsure, and Earn. However, it was the introduction of the protocol’s native token YFI that projected the protocol to the spotlight.
Before the token’s introduction, the available liquidity on the protocol was just $8M but this changed swiftly to more than $400M in just a week after launching the token.
Initially, only the Founder Cronje had the right to mint tokens, which has since been extended to include 9 members. These nine members are the closest there is to a board of directors. To make any changes to the protocol, at least 6 out of those 9 members need to approve through a Multi-sig wallet. Only active members of the DeFi community are included in the Multi-signature ownership and Cronje is not included as part of the signatory.
The Yearn Finance community members and contributors have explored the addition of extra YFI tokens to incentivize developers. They planned to add 6666 tokens to the existing pool of 30.000 and voted on the proposal on January 28, 2021. The vote to inflate the token supply by 22% passed with 1670 YFI voting in support of the proposal and 331 YFI voting against it.
4. How to use Yearn Finance
Now that you know what is Yearn Finance, let’s explore how people are actually using it.
You can use Yearn Finance for trading and lending through its product known as Earn, Zap, and APY. For example, Earn allows users to earn the highest interest on lending via all lending protocols. Earn searches all these lending protocols to get the best rate for users. Users can earn these interest rates by depositing USDT, sUSD, DAI, USDC, and TUSD on the Yearn Finance protocol.
Zap enables users to make many investments in a single click. That means that you can exchange your USDC for yCRV in a single stroke rather than repeated steps across different platforms. This is time-saving and cheaper in terms of the transaction cost. If tokens like yCRV are unfamiliar to you, do not worry. They do involve a few more steps to get but once you dominate the platform, it will come naturally to you.
Annual Percentage Yield (APY) on the other hand, analyzes the lending protocols available to Earn users then gives an estimation of the amount of interest they should expect to make annually for a specific amount of money.
You can also use Yearn Finance vaults on the protocol to gain earnings on your investment. However, it is a bit more complex than the other products we have talked about. Yearn Finance vaults utilize the protocol’s self-executing code to enable traders to track active investment strategies. There are 10 vault strategies available to users as of August 30, 2020.
However, for users to grasp how vaults work they have to be familiar with code as the strategies on it are expressed in Solidity. It sounds complicated, but actually investing in a vault isn’t as technical as it seems. The user interface on Yearn Finance does a pretty good job at simplifying the process.
Essentially, users will see a list of vaults with historical ROIs and can deposit USDC into any given vault. Then, the profits generated are used to invest in the same asset of each vault, creating a “continuous buy-and-hold strategy”. Finally, for those that wish to withdraw their funds, they will be proportionally allocated, based on the share of contribution of each investor to the pool.
Final Thoughts: Is Yearn Finance Legit?
The astronomical rise of its token YFI put it on the radar, but Yearn Finance is more than just a rapidly growing token. Yearn Finance has cemented itself as a key player in the DeFi market due to its ability to interface with multiple pools and offer the best possible rates.
Its technical capabilities allied with a valuable token and a large and passionate community make this project one of the most exciting ones in the DeFi space. The expectation of getting new products, new Vault strategies, and new integrations cannot allow any crypto enthusiast to avoid following the Yearn Finance community.
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ABOUT THE AUTHOR
ABOUT THE AUTHOR
Alex Moskov is the Founder and Editor-in-Chief of CoinCentral. Alex leans on his formal educational background (BSBA with a Major in Finance from the University of Florida) and his on-the-ground experiences with cryptocurrency starting in 2012. Alex works with cryptocurrency and blockchain-based companies on content strategy and business development. He privately consults entrepreneurs and venture capitalists on movements within the cryptocurrency industry.
His writing has been seen in The Hustle, VentureBeat, Yahoo Finance, Harvard Business Review, and Business Insider. His articles on CoinCentral have been cited on publications like Forbes, TechCrunch, Vice, The Guardian, Investopedia, The Motley Fool, Seeking Alpha, and more.
He also regrets not buying more Bitcoin back in 2012, just like you.
You can connect with Alex on Twitter.