BUIDL Launchpad is now live! 🎉

Down the Rabbit Hole: Yearn Finance, the decentralized yield aggregator!

Decentralized finance, also known as DeFi, has seen exponential growth as protocol yields have risen. The emergence of governance tokens, allowing the holders to direct the development of protocols, is credited with a significant portion of this rise. Governance tokens are crucial for the decentralization of DeFi systems.

Yearn Finance launched $YFI in July 2020, riding the wave of governance tokens. It instantly gripped the cryptocurrency space, rallying from 3 USD to more than 30,000 USD in less than a month.

Briefly understanding Yearn Finance

Yearn Finance is a suite of Ethereum-based protocols allowing users to maximize their asset holding by lending / locking their capital into vault strategies. It is commonly known as yEarn, an Ethereum Blockchain-based yield aggregation platform.

Andre Cronje first announced it on July 17, 2020, and it has since become one of the most valuable decentralized financial protocols. According to its official website, it is a decentralized network automating the yield-maximizing profit switching chances for yield producers and liquidity providers. To optimize token lending, it uses decentralized finance protocols like Aave, Compound, and others.

As yEarn has risen in popularity worldwide, it has expanded its entire ecosystem intending to maximize annual percentage yields, often known as APY.

Yearn Finance is one of the several new decentralized finance (DeFi) projects providing services solely through code, eliminating the need for a financial middleman such as a bank or custodian.

Key stats of Yearn Finance

All-time yearn users, all-time positions by vault total, and active addresses and positions are shown below:

https://dune.xyz/msilb7/Yearn-How-Many-Addresses-are-Participating
  • Data about cumulative voters, total votes, cumulative staked/withdrawn and claimed rewards, and details of governance rewards and YFI staked can also be checked out from below:
Source: https://dune.xyz/milkyklim/yearn-governance-yfi-
Source: https://dune.xyz/milkyklim/yearn-governance-yfi-
Source: https://dune.xyz/milkyklim/yearn-governance-yfi-
Source: https://dune.xyz/milkyklim/yearn-governance-yfi-
  • Here are the details about the donations of YFI contributors to yearn treasury over the time being:
Source: https://dune.xyz/miguel567/yfi-in-yfi-treasury-over-time
  • Yearn's unique weekly users' amount has also been fluctuating, as depicted below:
Source: https://dune.xyz/milkyklim/yearn-governance-yfi-
  • The current market value of $YFI is around 35.6k USD with a market cap of 1.3 billion USD. Out of the total of 36,666 YFI, Yearn Finance is currently circulating 36,637.72 YFI.

The entire ecosystem of Yearn Finance

yEarn supports a variety of stablecoins, including USDC, DAI, TUSD, and USDT, and moves them across different supported DeFi protocols, including Aave, Compound, Curve, and dYdX, based on whatever asset pool offers the most yield. Let's take a look at what we all desire without going into too much detail. The financial ecosystem has the following components:

  • yearn.finance - It is a profit-switching lender to increase lending yields.
  • ytrade.finance - The goal of ytrade.finance is to generate leveraged stable coin trading.
  • yliquidate.finance - Aave protocol automatic liquidations with zero capital.
  • yswap.exchange - It is a single-sided automated market maker called yswap.exchange.
  • yborrow.finance - Credit delegation vaults for the lending of smart contract to the smart contract.

Users can choose from one of the following categories to use the Yearn Finance ecosystem. 'Zap,' 'Earn,' and 'Vaults' are the four options.

Users can connect a wallet to 'Earn' to determine the best returns. 'Zap' gives users access to Curve Finance's stablecoin financing services.

By depositing digital assets managed in the most efficient system, 'Vaults' optimize pool liquidity.

Users earn YFI tokens by using the Yearn Finance platform to lock cryptocurrencies in Yearn Finance contracts operating on the Balancer and Curve DeFi platforms.

Yearn Finance makes use of a technique known as "yield farming," in which users store crypto assets in a DeFi protocol to earn additional currency. The protocols reward users with more tokens the more assets they lock in a platform.

The Yearn Finance platform garnered approximately 800 million USD in assets in its first month of operation, making it one of the fastest-growing DeFi initiatives to date.

yTokens' mechanism of operation

In the crypto industry, yEarn has a unique position as one of the most decentralized projects. Tokens like USDC, USDT, and DAI are converted to yTokens (yUSDC, yUSDT & yDAI) when a user deposits them. When a user deposits funds, the smart contract checks the APR, similar to Oracle; the main difference is that Oracle checks off-chain, whereas everything is considered on-chain here. When a user deposits, yEarns allows them to earn both loan and trading fees from the underlying protocols.

Working of Yearn Finance

  • Yearn Finance Vaults Vaults are the most advanced offering of Yearn Finance, that allows users to leverage the platform's self-executing code to follow active investment plans. Vaults now have ten strategies accessible as of August 30. Depositing in a Vault is simple. The user interface of Yearn Finance allows users to deposit popular assets such as DAI and USDC into each strategy, showing each strategy's return on investment.
  • Zap & Earn Earn allows users to discover the most significant interest rate on lending by searching across multiple lending protocols such as Aave and Compound. Users can then deposit their USDC, DAI, TUSD, USDT, or sUSD to get those interest rates on the Yearn Finance platform. Similarly, Zap enables users to accomplish multiple investments with a single click. The user saves time, money, and transaction fees as a result of this.

Yearn Finance getting decentralized

While YFI was essential to Yearn Finance in terms of generating deposits and attention, it also served another purpose: decentralizing protocol development and control among users & contributors.

The farming system allowed any user to generate YFI simultaneously and at the exact percentage, whether they had 100 USD or 1,000,000 USD. A full governance platform has been built since the launch of YFI, where token holders can vote on various decisions suggested by community members.

Hiring a team of contributors and the addition of strategies to Vaults are examples of decisions made thus far.

Governance have also made the critical decision to share a portion of the protocol revenues with YFI holders. Fees collected from Yearn Finance products go to the treasury, then dispersed to YFI holders and the team.

Why is YFI important?

While many people are focused on YFI's price movement, it is significant because it signaled a shift in how protocols can be incentivized to be adopted. It has been said that the launch of YFI was one of the "fairest launch because everybody could participate in it irrespective of the size of your asset holding.

YFI users were required to participate in the protocol rather than buying a token. Because of which, every user had the same capacity to influence Yearn Finance through the governance token, a the community grew stronger around the project.

Yearn Finance has one of the most strong community in DeFi, even after the initial price fluctuation.

An unexpected jump to YFI

On September 8, the price of the YFI token was found to be 127% greater than the price of Bitcoin, according to statistics.

On July 30, the YFI token's market cap was announced to be 123 million USD. In August, the price increased by more than 700 percent to 985.7 million USD, and on September 1, it surpassed 1002 million USD. However, just a week later, on September 7, the price dropped by 311.9 million USD. The weekly trading volume of the YFI token, on the other hand, was reported to be more than 2.2 billion USD.


Looking for more content to learn about Web3?
Subscribe to our newsletter for weekly updates 👇

Connect with us