Decentralized finance (also known as DeFi) has grown exponentially due to the massive popularity of protocol yields. Governance tokens, which allow holders to participate in protocol development, are credited with fueling this “boom.” These tokens are critical to the decentralization of DeFi systems. Yearn.finance launched $YFI in July 2020, capitalizing on the buzz generated by governance tokens. It surprised the crypto community, rising from $3 to $30,000 in less than a month.
This article comprehensively explores Yearn.finance and how it works, among other things.
What is Yearn.finance and How Does it Work?
Yearn.finance is a collection of protocols built on the Ethereum blockchain. It enables users to maximize their revenue from crypto assets by providing lending and trading services.
Yearn.finance is one of the new decentralized finance (DeFi) companies that provide services entirely through code, eliminating the need for a middleman such as a bank. It has built a system of automated incentives around its YFI cryptocurrency to accomplish this.
The Yearn.finance platform is comprised of several standalone products, including:
- APY: An information table that displays interest rates for various lending methods.
- Earn: provides the highest interest rates users can earn by leasing an asset.
- Vaults: A collection of investing techniques designed to maximize profits from other DeFi ventures
- Zap: This bundles multiple trades with a single click, saving money and time.
Users can earn YFI tokens by locking cryptocurrencies in active Yearn.finance contracts on the Curve and Balancer DeFi trading platforms. By locking up cryptocurrency assets in a DeFi protocol, users can employ the practice known as “yield farming” to increase their earnings. The protocols reward users with more tokens in proportion to the amount of assets they lock onto the platform. The Yearn.finance platform was one of the DeFi projects with the fastest growth to date, raking in approximately $800 million in assets in its first month.
The Evolution of YFI
Andre Cronje single-handedly created the Yearn.finance protocol, which was initially known as iEarn. When the protocol was attacked in 2020, the founder was forced to leave for a while due to public outrage.
This attack essentially took advantage of Cronje’s testing of his software in a “live” environment. This made a user lose more than $400k in curve finance through slippage, but it also allowed his friend to enter the picture and undo the slippage. Despite widespread suspicions, the attack did not cause as much damage as it could have.
However, he returned to the protocol, and iEarn was rebranded to Yearn.finance. New products, including StableCredit, Vaults, Earn, and yInsure, were also added to the platform as a result of the rebranding. The protocol, however, rose to prominence with the launch of its native token, YFI.
Prior to the launch of the token, the protocol had only $8 million in liquidity. Nevertheless, this quickly increased to more than $400 million in just one week.
Initially, only Cronje had the authority to issue tokens. However, that authority has subsequently been extended to nine additional members. Six out of the nine members must vote in favor of any changes to the protocol using a multi-sig wallet. Cronje is not one of the people who signed the ownership document because it only includes people who are active in the DeFi community.
What Distinguishes YFI from Bitcoin?
A few key features distinguish YFI from Bitcoin.
YFI is an ERC-20 token, which means it is supported by and runs on the Ethereum blockchain. As a result, YFI does not employ its miners. Ethereum miners process and verify YFI transactions in the same way that Bitcoin miners do.
But how can you earn YFI if Ethereum miners make ETH from mining Ethereum? You can’t, at least not any longer. Yearn.finance distributed YFI to those who had invested in the YFI protocol when the project was first launched. The initial method of earning YFI involved providing liquidity to one of the platforms mentioned above and staking the output tokens in the distribution contracts, for which liquidity providers would earn a specific amount per day.
However, as YFI’s price rose, those tokens were swiftly purchased. Currently, the only ways to “earn” YFI are to buy it on spot markets or earn it as interest from other DeFi protocols.
The second significant distinction between YFI and Bitcoin is that while the Bitcoin blockchain is secure, YFI is extremely risky. The website of Yearn.finance is littered with references to “beta,” and the project’s creator, Andre Cronje, calls it “experimental.” When he introduced the yCredit protocol, Cronje warned that his new method could be “economically misused.”
Additionally, scams and hacks are common in decentralized finance. For instance, pickle.finance, a DeFi protocol that was compromised for nearly $20 million, merged with yearn.finance. Remember that while these flaws may not directly impact the YFI token, they may diminish the value of the ecosystem YFI supports.
According to the analytics website, CoinGecko, the price of pickle.finance’s token, PICKLE, dropped by 43.8% as a result of the attack. What if yearn.finance, a similarly experimental project, experienced the same thing?
Furthermore, because Yearn.finance’s contracts created YFI, anyone with a sufficient amount of the token can vote to change its course, for example, by creating a competing token or irreversibly harming the protocol. This could devalue YFI as well. Because Bitcoin has a larger market cap than YFI, it is difficult to conduct this type of activity on the Bitcoin blockchain.
Investing With Yearn.finance
You can invest with Yearn.finance using any of the following methods:
Yearn Finance provides you with options as an investor. If all you want is to own the YFI token, you can buy it on exchanges like Curve or Uniswap. You can then proceed to store your assets in a cryptocurrency wallet.
You can also cash out your YFI instantly when you decide to take profits. YFI is also available on centralized exchanges such as Kraken and Binance.
Yield-farming With YFI
The selection of products on the Yearn Finance platform ranges in risk from low to high. Iron Bank is a more accessible and less risky option because it allows users to borrow money using cryptocurrency as collateral without selling it.
Unlike traditional banking solutions, Vault gives you unfettered access to your investments. There are vaults for individuals with higher risk tolerance. Choose a strategy from the available options in Vault, deposit the appropriate tokens, and Yearn Tech will help you maximize yield by rebalancing, auto-compounding, and moving capital.
Remember that there are no consumer protection laws and no customer service number to call in the event of a hack or a flaw in the code. Even though Yearn Finance is considered secure, users should know their risk tolerance levels.
Pros and Cons of Yearn.finance
- It provides some of the highest investment returns in the DeFi space.
- Yearn.finance upholds high-security standards.
- New tokens cannot be produced because the protocol has reached its maximum capacity.
- The Yearn.finance platform is up against stiff competition, and a few limitations may dissuade some users.
- Yearn.finance’s competitors offer tokens that can be manufactured and are limited in supply.
Yearn.Finance performed excellently in December 2021, recording green candles on market charts. As previously stated, the rapid price surge increased the YFI token’s market capitalization by over $400 million. With the upcoming decentralized web3 and DeFi protocols, YFI has a lot of potential for the future, given how well it currently works and how often new features that make the platform more valuable are added.
- The introduction of YFIhas transformed how cryptocurrency projects distribute tokens across the industry.
- Projects can quickly gain adoption and community expansion by offering incentives for early adopters. This is similar to the concept of “skin in the game,” which states that people who have money or feelings tied to an investment will do everything they can to ensure it succeeds.
- Yearn.finance gained widespread public attention due to the meteoric rise of its token (YFI), but it is much more than that. Yearn.finance is a major player in the DeFi market due to its ability to connect to many pools and offer the best rates.
- This project is one of the most intriguing in the DeFi space due to its technological prowess, valuable token, and large, enthusiastic community.
- Crypto enthusiasts follow the Yearn Finance community because of the possibility of receiving new products, vault tactics, and integrations.
If you would like to read more articles like this, visit DeFi Planet and follow us on Twitter, LinkedIn, Facebook, and Instagram.
“Take control of your crypto portfolio with MARKETS PRO, DeFi Planet’s suite of analytics tools.”