What is yearn.finance?
Yearn Finance (hereby referred to as Yearn or YFI) is a product/platform that enables ethereum users to earn a rate of return on their cryptocurrency. Do you yearn to learn more?
Yearn is perhaps better defined as being a protocol, since it is essentially computer code that communicates with other protocol’s code. The objective of this computer code is to move cryptocurrency around the internet seeking a return on investment.
Delving deeper, Yearn is a community of builders who are collaborating together. If you fancy being part of it, your contribution and commitment to Yearn will give you influence.
Released by Andre Cronje in February 2020, Yearn has quickly become established in the decentralised finance (DeFi) industry/ecosystem. Unlike centralised institutions (e.g. your bank) which are often managed by a single entity, a DeFi institution is governed by its community, whoever and wherever they are. Measured by total value invested/locked, Yearn is currently the 7th most popular in the industry (www.Defipulse.com)
With significant funds (over $3 billion at the moment) locked on Yearn over recent months (above), the protocol has got the trust of its users. This is despite an unfortunate part of Yearn’s history whereby an attacker profited approximately $2.8 million in February 2021. https://halborn.com/explained-the-yearn-v1-ydai-hack-feb-2021/
What value does it bring?
Yearn enables users to earn rates of return that they would find difficult (but not impossible) to achieve on their own. This is because Yearn pools funds together, enabling individual users to save on transaction fee (gas) costs. Additionally, Yearn’s computer code/smart contracts are reactive to changing market conditions. So rather than monitoring the markets yourself, if you deposit on Yearn, this is done autonomously for you. So if at 4 AM — while you are asleep — it becomes profitable to deposit ether to Curve for 5% instead of Aave’s 4%, Yearn will do this. Not too dissimilar to a fund manager at your stockbroker, Yearn charges a 20% performance fee and a 2% management fee (docs).
How does it work?
In a nutshell, Yearn is a group of protocols running on the Ethereum blockchain that allow users to optimize their earnings on crypto assets through lending and trading services. What is cool about Year is how it provides its services using only code, removing the need for a financial intermediary like a bank or custodian. Yearn does this by building automated incentives around its YFI cryptocurrency. Yearn offers the following independent projects:
- APY which is a data table that shows interest rates across different lending protocols.
- Earn which identifies the highest interest rates users can earn lending an asset.
- Vaults which is a collection of investment strategies designed to generate the highest returns from other DeFi projects.
- Zap which bundles several trades in one click, saving on costs and labor.
Lending and Trading on Yearn
The main goal of yearn.finance’s services is to enable users to lend or trade their cryptocurrency. Users can then deposit their DAI, USDC, USDT, TUSD or sUSD on the yearn.finance platform to receive those interest rates. Zap allows users to complete several investments with one click. For instance, a user can trade DAI for yCRV (another DeFi cryptocurrency) in one action, compared to three actions across the yearn.finance and Curve platforms. Not only does this save time but also opportunity cost and transaction fees. APY (which stands for annual percentage yield) searches across the lending protocols that Earn uses, and gives the user an estimate for how much interest they can expect to earn, on an annualized basis, for a certain amount of capital. On the other hand, Vaults is yearn.finance’s most complex service allowing users to follow active investment strategies using the platform’s self-executing code. In this way, Vaults are like actively managed mutual funds. You would need some familiarity with Solidity in order to understand how the Vaults operate. However, investing in a Vault is straightforward. yearn.finance’s user interface allows a user to deposit popular coins such as DAI and USDC in each strategy, with each strategy displaying its historical return on investment.
How is it governed?
Yearn token holders can submit proposals and if more than 50% agree then the change is made. One YFI token is worth one vote.On April 25th 2021, Yearn transitioned into a multi-DAO structure, managed by constrained delegation. Multi-DAO is a fluid number of DAOs (Decentralized Autonomous Organizations) that contribute to the protocol. These groups include YFI holders who vote for changes to the protocol’s structure, yTeams who focus on specific aspects and Multisig members who excecute or veto any on-chain decisions. Although Yearn is governed by YFI, YFI does not govern Yearn’s contributors. Holding YFI entitles you to signal for real, practical change that improves Yearn. It doesn’t give you the right to tell other contributors what to do. You want something done? Do it.
How many whales? The majority of the 36,666 total YFI was distributed in one week (when?), meaning a group of early adopters are the ones likely to have the most tokens.
If there’s something you can’t work out, why not ask in the public chat and see if a stranger can try and explain?
PLEASE REMEMBER: Scammers may try and message you privately with the aim of tricking you into giving away your funds. Don’t share your private key, or sign off your funds for a website you’ve reached through an unusual source (it may be a fake!).
Suggest an improvement
Does something not work as intended, or do you have an idea for a new strategy? Share it in the discord or, better — if you know how — make the change yourself on github. After all, Yearn is open source. Learn more here about helping build Yearn.