Yearn.Finance is a Decentralized Finance (DeFi) network that runs on the Ethereum blockchain. The yield farming craze and the price of the token has made it very popular. Yield farming involves complex strategies, but this platform has simplified them for non-expert crypto users.
The protocol has a native cryptocurrency token called YFI. A liquidity provider has to stake the assets in the Yearn.Finance asset pool to earn the YFI token.
In the battle between Decentralized Finance (DeFi) and Centralized Finance (CeFi), DeFi protocols are continuously punching the right places and gaining traction. With the introduction of yield farming or liquidity mining, DeFi continues to gain popularity as investors find ways to diversify their earnings.
The popularity has seen the birth of many DeFi focused networks. Some, like SushiSwap, are forks of prominent permission less finance platforms. However, notable platforms still exist. And Yearn.Finance (YFI) is one of them.
- Price $8,278.18
- Market Cap
What is Yearn.finance?
Before we look at the basics of the platform, let’s look at its team.
Yearn (YFI) is the brainchild of Andre Cronje, a computer programmer. Cronje has a computer science background, and his experience spans from big data, financial technology (Fintech), distributed ledgers, to insurance.
Yearn is a decentralized protocol aimed at powering blockchain-based finance, commonly referred to as decentralized or distributed finance. The platform rewards users for providing liquidity or depositing their virtual currency on the platform to ignite lending. The project leverages the power of the Ethereum (ETH) blockchain.
The protocol works by taking user funds and distributing them to other DeFi-based platforms such as Aave and Compound. While this increases the risk, it also increases the yields since different yield farming systems have different earnings ratios.
Yearn has a native currency called YFI. The YFI token follows Ethereum’s ERC-20 standards and enables community involvement in the platform’s governance issues. However, there were claims that governance on the platform has been centralized among a few individuals (more on this later).
Farming rewards are distributed using the token, which has a hard capitalization of 30,000 tokens. Apart from earning the token through liquidity mining, the token is listed on some major cryptocurrency exchanges like Binance, and it’s ready for trading.
The functioning of Yearn.Finance
For newcomers, the mentioning of blockchain, smart contracts, Decentralized Applications (Dapps), or even DeFi, is enough to through them into a panic mode. Fortunately, it’s very easy to understand the functioning of Yearn.
The network deals in stablecoins such as Tether (USDT) and True USD (TUSD), among others. Yearn’s work is to determine which platforms between DyDx, Aave, and Compound offer the best rates in terms of yields. Then, deliver the stablecoin to that platform.
Note that all coins deposited on the network are optimized for liquidity mining by changing them into ytokens. For example, if USDT is deposited, the system converts it into yUSDT. However, the deposited coin is delivered to a supported platform like Compound in its original form.
So, why convert it only to deliver it in its original format? Good question. The answer, only ytokens are eligible to earn YFI tokens.
Products under Yearn.Finance
Apart from the platform being geared towards liquidity mining and yield farming, there are other products on the platform. For instance,
- ytrade.finance – This a platform for leveraged trading, offering maximum leverage of 1000 times. It supports USDT, DAI, sUSD, TUSD, and USDC.
- Yliquidate.finance – A system developed for Aave protocol to provide automatic liquidations.
- Yleverage.finance – Provides leveraged trading between DAI and USDC with a profit of approximately 16 percent and a leverage of up to 5 times.
- Yswap.exchange – a platform powered by automated market making.
Farming YFI can be done in three ways. However, all of these ways involve a staking pool.
This was the pioneer pool of the Yearn.Finance protocol. It supports USDT, TUSD, USDC, and DAI stablecoins. Staking on this pool gives the platform greenlight to spread funds between Compound, DyDx, and Aave depending on possible yields. The pool has a daily APY (annual percentage yield) of roughly 33 percent.
Ytokens originating from stablecoins deposited in this pool can be used on Curve.Finance, another DeFi platform providing low price fluctuations when trading stablecoins. Rewards from Curve are in the form of yCurve tokens (yCRV). Note that yCRV coins can be exchanged with YFI token.
Pool 2: The Balancer protocol
Pool two allows staking DAI and YFI tokens with DAI accounting for 89 percent and YFI the remaining 2 percent into the Balancer network. In exchange, yield farmers receive the platform’s native token, BAL. To get YFI, deposit BAL into the yGov pool. Its fees are capped at 0.15 percent for every trade.
Pool 3: The Balancer pool
The pool supports deposits in yCRV and YFI tokens to generate rewards in Balancer pool tokens called BPT. Staking BPT into the yGov pool gives you YFI tokens. Note that every pool was allocated 10,000 YFI tokens.
The first YFI fork
The first fork of YFI is YFII, also called DFI.Money. The team behind the fork accused its parent of not having a fair governing structure since most of the powers were with the founder. However, a failure to reach an agreement on the YIP-8 proposal led to the fork promising better governance and launch criteria. The spinoff had its majority supporters from the Chinese community while the original project is a darling of the west.
In its first few days of existence, YFII dominated the DeFi news screens for having attracted a massive following and value locked. However, as the hype dropped, so did the value locked and the price of a single YFII token.
What’s in store for the Yearn.Finance community?
Being in its early stages of development, the protocol still has a long way to go before the community sees the horizon. Cronje even admits that the platform’s features were baked in a matter of weeks. Therefore, they’re being fine-tuned. Also, information about the intimate details about the platform is still being provided. DeFi enthusiasts, yield farmers, and liquidity miners should enjoy the platform as they wait to see what Cronje and his team have in store for them.
Earn, Zap, Vaults, and Cover
The platform has an array of yield-creation products like Earn, Zap, Vaults, and Cover that contributes in different ways to its goals of aggregating liquidity and leveraged buying and selling. In the cryptocurrency ecosystem, numerous DeFi protocols give liquidity farming services though their yields vary. For example, one protocol may bring better yields than the other for the same amount of capital staked.
It’s a common practice in the crypto market for yield farmers to move their funds from one protocol to another to hunt for higher yields. What does this mean? An investor has to engage in proper research to land the protocol with the best returns.
YFI has gained popularity by making this “protocol research” easy. It has automated the search process. The most optimal opportunities among the many decentralized lending protocols, like Compound and Aave, are brought to the investor’s attention.
Yearn.Finance automatically scans the market and avails the pooled liquidity to the best return on investment (ROI) opportunities. Additionally, investors may sometimes need to lend their funds to liquidity mining strategists who use top-notch measures to leverage yield farming tokens for the highest returns. The YFI platform’s Vault product takes up such lending tasks.
The Zap product allows to convert tokens. Moreover, the Cover feature deals with smart contracts from an unfortunate loss of locked-up funds from unprecedented market events. The platform has had a tight grip on the yield farming arena such that its token, YFI, has been presumed as the global Yield farming index in cryptocurrency.
What makes the YFI coin successful?
In July 2020 (the month of its inception), the token had a market cap of $10 million, but skyrocketed in the following month to reach a market capitalization of more than $0.8 billion in August 2020. Between this period, it rose to the ranks of the top 5 DeFi coins in the cryptocurrency ecosystem.
It’s currently at $876,649,320 market capitalization ranking at position 25 globally. A single token of YFI boasts of an impressive price equivalent to $29,253. You can find the current price at the top of the page.
So what’s the secret behind its success? Why are investors trusting it and pumping millions to its protocol? Let’s dig in.
Distinctive supply method
Yearn.Finance was programmed by a South African software guru, Andrew Cronje, who released 30,000 tokens. The number has since remained static. What awed crypto enthusiasts is the fact that Cronje did not hold back some tokens as a pre-mine to reward himself as the currency’s pioneer.
The fact that the programmer entirely gave up control of the YFI platform with its array of products is a crucial selling point.
This peculiar decentralization of tokens has given control rights to earners of YFI tokens. The absolute control has made the YFI DeFi protocol stand out from the other protocols and attract investors’ attention.
Status of the developer
Having partnered with top programmers and executives in the cryptocurrency arena, Cronje is a revered expert. Apart from being the pioneer of YFI, he has provided invaluable tools to the DeFi users. For instance, Yinsure.Finance has given insurance services to crypto investors.
Cronje confided about partnering with Mr. Fried, the Chief Executive Officer of FTX and Alameda Research, which are institutions with a significant role in the crypto industry.
In the past, the success of crypto platforms has had a crucial bearing on the founder. Consider how the death hoax of Ethereum’s Buterin affected the trading of the ETH. Thus, Cronje’s status must have contributed to the product’s high uptake and is bound to boost further usage.
Since it was developed in less than five months, the YFI currency reached an impressive all-time highest daily price of $39,306.10 on the last day of August 2020.
High utility products
The platform comes with a set of other products apart from the YFI token. These distinct features were mentioned in the features section at the start of this article.
The different products provide high utility services for DeFi users like YFI token earning, YFI token investments, YFI token conversions, and YFI token staking.
YFI correlation with major currencies
Since mid-June 2020, major cryptocurrencies that have had the most synchronized correlation are BTC versus LTC, ETH versus XRP, followed closely by ETH versus BTC. The correlation indexes have been 0.83,0.76, and 0.73 respectively.
These indices translate to the fact that a shift in the prices of any of these coins will match at a rate of over 73% at all the instances. The only minor currency that had a close correlation to the three major currencies – BTC, ETH, and XRP – in the period was DOW but was never passed the 0.3.
What does that mean? YFI, which is still a minor cryptocurrency, had no noted correlation with the major currencies. The disparity comes with an advantage. It poses an opportunity for an investor to diversify his/her assets with a minor currency that may have a stable price when the major currencies take a tumble.
Investing in the major currencies alone may expose the investor to losses. Due to their high correlation index, a negative shift in their prices may affect all of them.
Conclusion of this Yearn.finance review
The yield farming or liquidity mining craze brought by DeFi has created a need to develop platforms revolving around the same. Some original, some forks, and anything in-between. However, Yearn.Finance is among the few who seem like they mean what they say. In a space full of scams and get-rich-quick schemes, caution should never be thrown out of the window in search of yields.
Investors may certainly drool over it for its almost zero correlations to the major cryptocurrencies and use it for diversification strategies. Though its trading volumes are relatively lower than the major cryptocurrencies, its limited supply is a crucial advantage. With just a static 30,000 YFI supply, the scarcity will, in theory, keep its price high!
25 November 2020 @ 15:49
What is the per day return