Decentralized finance (DeFi) gives crypto users multiple opportunities to increase their crypto holdings. Reward-generating strategies are some of the most popular ways to use DeFi, whether through decentralized lending and borrowing, providing liquidity to an automated market maker platform, or seeking out the highest incentives offered by DeFi protocols.
Yearn Finance (sometimes stylized yearn.finance) aims to find the best opportunities for rewards and assemble them into one easy-to-use place for DeFi users. This makes its platform a yield aggregator.
Although users can manually try to find opportunities like this across DeFi apps (called yield farming), Yearn instead allows them to deposit funds into vaults, called yVaults, which use different strategies in an attempt to earn passive income on their crypto holdings.
Yearn’s Ethereum-based token, YFI, allows its holders to participate in governance and decision-making on the platform.
How was Yearn Finance developed?
Yearn was initially launched in early 2020 by South African computer scientist Andre Cronje, who is also known for co-founding the Fantom blockchain. Originally named iEarn.finance, the project saw almost immediate success, with its YFI token—released in July 2020—reaching a market cap of over $1 billion by August that year. Despite its meteoric rise, Cronje announced in October 2020 that he would be leaving the project and DeFi altogether, but later would work on other projects like Fantom—only to step away again in 2022.
Although many projects reserve some of its supply of tokens for founders, investors, and the development team, Yearn approached its YFI token distribution with a “fair launch.” Through this process, all YFI were distributed to users of Yearn for providing liquidity or staking through the platform.
Yearn has continued to grow despite the departure of its founder, and its community has guided the project into a period of stable operation. Although it was built on Ethereum, it has expanded to include support for other chains including Fantom and layer 2 solutions like Arbitrum and Optimism.
How does Yearn Finance work?
Yearn’s platform is designed to collate reward-generating opportunities across DeFi. This means that it capitalizes on other protocols like the stablecoin decentralized exchange (DEX) Curve, lending/borrowing platforms Aave and Compound, the DAI-issuing protocol Maker, and more. This simplifies the process of yield farming by finding the most profitable DeFi strategies and compiling them on one platform.
yVaults, yCRV, and yBribe are three primary products offered by Yearn.
Users can deposit their crypto into yVaults for Yearn to find the highest earning strategies and return those rewards to them. By depositing DAI, for instance, a user receives yvDAI in return—a token that gives them the opportunity to collect a reward from the DAI yVault.
For this service, yincurs a performance fee (and sometimes a management fee) that comes out of the rewards paid out to the depositors. Performance fees are paid to strategists, who create vetted strategies implemented on the platform.
There can be up to 20 strategies used at any time by a yVault, diversifying rewards across multiple platforms and sources. Strategies can be as simple as depositing in the best liquidity pools, which may change over time.
Alternatively, strategies can also involve multiple steps. For example, a yVault may both supply and borrow a stablecoin on a lending platform like Aave, while also supplying collateral to the Maker protocol to mint DAI and “flashloan” it (a loan that is paid back within the same blockchain transaction) to the same position on Aave. This type of strategy shows that using multiple platforms and methods can boost rewards.
Among all DeFi protocols, Yearn is perhaps most intertwined with the stablecoin DEX, Curve Finance, and offers unique opportunities to holders of Curve’s governance token CRV.
Yearn’s yCRV system allows users to use special tokens/yVaults that have different functions.
- yCRV – Token used on the platform to interact with Yearn’s other Curve-based offerings. Can be minted by permanently locking CRV to Yearn’s position in Curve’s locked voting token called veCRV (vote-escrowed CRV).
- st-yCRV (staked yCRV) – Tokens that generate rewards from Curve admin fees and governance votes.
- lp-yCRV (liquidity pool yCRV) – Tokens that generate rewards from providing liquidity in Curve’s CRV/yCRV pool.
Yearn’s final offering involves the use of veCRV.
Holders of veCRV, who have the power to vote in Curve governance proposals, can earn rewards through Yearn’s yBribe platform by selling their votes to the highest bidders who, in turn, can vote on how CRV rewards are allocated.
How is the YFI token used?
YFI was originally designed as a token to reward early users for adopting Yearn’s platform, which caused an influx of users.
Once YFI was fully distributed, YFI holders are now responsible for governing Yearn’s platform through a decentralized autonomous organization (DAO). They do this by first locking their YFI on the platform in the form of voting escrow YFI (veYFI).
YFI has a total supply of 36,666 tokens. Upon inception, Yearn’s token distribution initially allocated 10,000 YFI to the yCRV liquidity pool, and 10,000 YFI to two separate Balancer liquidity pools.
Soon afterwards, YFI holders voted to mint an additional 6,666 YFI tokens to help safeguard the future development of the protocol. One-third of these tokens were then vested by key protocol contributors, with the remaining two-thirds deposited into the platform's governance-operated treasury.
Yearn Finance Essentials
- Yearn Finance is a “yield aggregator” that allows users to generate crypto rewards through automated yield farming using DeFi protocols like Curve, Compound, Maker, and Aave.
- Yearn uses multiple strategies—often simultaneously—to help users seek out the most rewards, and its offerings include interest-bearing yVaults, multiple Curve-based yCRV tokens, and a system for auctioning veCRV voting power.
- Although the YFI token was originally used as incentives for using Yearn, all YFI tokens have been distributed and it is now used for governance of the platform.
How to buy yearn.finance (YFI)
You can buy the Yearn.finance coin on Bitstamp. Sign up for a Bitstamp account and start trading YFI today!
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