What Is Yearn Finance? The DeFi Gateway Everyone Is Talking About

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What Is Yearn Finance? The DeFi Gateway Everyone Is Talking About

The Takeaway:Yearn.Finance aspires to be the gateway to a bevy of yield-generating products in the Ethereum ecosystem.After a rapid ascent in Augus



The Takeaway:

  • Yearn.Finance aspires to be the gateway to a bevy of yield-generating products in the Ethereum ecosystem.
  • After a rapid ascent in August 2020, there is now $650 million worth of crypto assets staked in Yearn, seeking the best returns in the booming decentralized finance (DeFi) sector.
  • The prospect of what one observer called an “intuitive interface to all of DeFi” is what makes Yearn and its YFI coin stand out from the recent crop of “Weird DeFi” projects.
  • But given that Yearn has several different elements, the platform is one of the harder ones for novice investors to understand.

Some $650 million has poured into DeFi’s Yearn.Finance since mid-August. DeFi is driving most of the excitement in crypto right now, and Yearn and its YFI token are central to the latest buzz.

That said, Yearn has a lot of moving parts and the platform is growing all the time, making it intimidating for rookie yield farmers to grok.

What is Yearn.Finance?

Most people who answer this question will say it’s a community-driven robo-adviser for yield (and it is), but the problem with this answer is that a DeFi n00b will go to the site and see all these options on the front page: Vaults, Earn, Zap, APR and Cover and wonder where to start.

So, really, Yearn.Finance is a portal to various DeFi products. And given that DeFi now has nearly $8 billion in crypto assets committed to it, mainstream traders could start rolling in any day. If that happens, a front door might end up being very valuable.

“The unifying goal of all Yearn products is to create this simple intuitive interface to all of DeFi,” Jesse Walden of Variant Fund told CoinDesk in a phone call.

Read more: What Is Yield Farming? The Rocket Fuel of DeFi, Explained

The one that generates the lion’s share of the conversation is Vaults, but Yearn has also built user interfaces to DeFi products from other teams, in order to make life easier for active traders.

For example, Zap is an access point for Zapper.fi (which simplifies taking complex positions) and Cover is an access point to Nexus Mutual (which allows users to hedge smart-contract risk on Yearn). APR is just a page that gives visitors one place to see the returns from depositing various assets into various products. Other products are currently being tested.

But Yearn.Finance, of course, also provides access to its own products, and that’s what people are buzzing about.

What is the YFI token? Why has it traded as high as $38,000?

YFI is the governance token for Yearn.

It really grabbed people’s attention because Yearn’s creator, Andre Cronje, didn’t set any aside for himself. He gave all of it to folks who had deposits in certain key liquidity pools that benefited the project.

There are only 30,000 YFI and they have all been distributed now. According to the YFI documents, more can be minted by governance.

Tarun Chitra of the Gauntlet Network (and also a member of Yearn’s nine-person multisig, the equivalent of a board of directors) does not believe that will happen, though. “I think the ‘no inflation’ meme is here to stay,” he said. “I think there are other ways for the system to monetize.”

So to get YFI now, users just need to buy it.

Read more: Troll Token? Why DeFi Yield Farmers Are Now All About YFI

To participate in governance, YFI holders have to stake their YFI; once they cast a vote they are stuck for three days. That’s the downside, but the upside is they will earn a small fee for voting.

In a Telegram message to CoinDesk, Cronje described this as a “dividend, not a yield strategy.”

Yearn charges a 5% fee on a certain portion of a certain kind of withdrawal. It’s not really worth going into, but it’s used to maintain a $500,000 treasury. Usually, it has more than this, though, and when it does it distributes the excess to YFI holders. The amount a user is likely to earn from a vote seems to be rather unpredictable and right now it’s not substantial.

Chitra says that a lot of DeFi projects are thinking about how much to pay out to governance token holders and how much to set aside for future needs. As that gets sorted out, he expects yield on YFI to go up.

Notably, YFI only pays dividends to holders who vote their tokens in governance.

What is Yearn.Finance’s Earn product?

On Earn, users can deposit any of several stablecoins: DAI, USDC, USDT, TUSD, sUSD and wBTC. Then, Yearn will look for the DeFi platforms on which they can earn the highest yield.

In the early days of yield farming, this is what Cronje built the site to do: move stablecoins around to the best place for growing them as conditions changed.

As it grew, Earn had to become more sophisticated.

Because of its size, Earn can’t simply look at the highest yield pool on Compound or Aave (two lending protocols that provide yield to stablecoin holders). If Earn dumped its holdings all in one place it would dramatically change the yield. So Yearn’s Earn product has to try to estimate the optimal allocation – and that changes constantly because other users are going in…



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