Decentralized Finance, powered by Blockchain platform and known as DeFi, has observed a revolutionary growth due to protocol provided yields have exploded massively. A critical part of this rise can be found in introducing governance tokens, which enable users to determine the direction they want protocols to grow. Governance tokens are an essential component in decentralizing DeFi protocols. Following the trend of governance, tokens, Yearn. Finance came out with YFI in July 2020.
Yearn Finance, powered by Blockchain technology, is an Ethereum-based, open-source protocol utilized for DeFi lending. Yearn Finance is conceptualized to maximize the user's yield by moving the user's funds automatically to different DeFi lending protocols such as Compound, Dydx, Curve, or Aave. Yearn Finance is recently among the most popular and decentralized DeFi projects the crypto industry has ever got.
Andre Cronje has developed the Yearn Finance platform and launched it in February 2020. Immediately after its release, the protocol gained significant momentum in the form of adoption by many actors in the crypto sphere, which can be seen in the considerable increase in the YFI token value. YFI is a governance token that drives the ability to vote for users about in which direction the protocol should move ahead.
Core Products of Yearn Finance
Many products in the form of applications powered by Yearn Finance are currently available in the market for implementation. Following are some of the popular products:
Vaults: Vaults are the pools of capital that generate yield based on opportunities in the market. It assists the community members to work cooperatively in making strategies to determine the best yield protocol. Vaults feature several functions, including- using any asset as liquidity, using liquidity as collateral and managing collateral at a more secure level to prevent a default, Borrowing StableCoins, putting StableCoins on some farming work, and reinvesting earned StableCoins.
Earn: As a lending aggregator that automates switching user funds between different lending platforms. Users are allowed to deposit DAI, USDC, USDT, TUSD, WBTC, or SUSD into Compound, Dydx, or Aave and other such high-yielding DeFi protocols, whenever a change in interest rate occurs. Earn page provides users with the opportunity to deposit into such lending aggregator smart contracts. The code used to build the application manages and helps users draw benefits by obtaining the high-interest rates among all the involved platforms.
Zap: Zap enables the users to switch between several StableCoins with just one contract interaction to minimize the cost of transactions. Users can also save on gas fees by directly zapping into or out or Curve pools from the base assets. It permits the users to swap into and out of (known as "Zapping") different liquidity pools in Curve.Finance. Currently, there are five StableCoins available for users, including BUSD, DAI, USDC, USDT, and TUSD, that users can "Zap" into one of two pools (y.curve.fi, busd.curve.fi) on Curve. Users can anytime "Zap" out of these two Curve pools and swap into any one of the five bases StableCoins.
Yearn Governance Token (YFI): YFI is the platform governance token, which can be utilized for governance activities such as voting in favour or against the proposal for protocol upgrade or change. Only 30,000 governance tokens are minted and fully distributed till now. To obtain the chance of voting, users are required to stake their YFI tokens in a governance contract, in return for which users receive a share of the total protocol profit for each of Yearn's products after a certain period. The treasury vault temporarily holds stakeholders' profit and is distributed only when the treasury touches the mark of USD 500K. yCRV tokens are the way to spread the profits. Within three days of voting, users are allowed to claim the rewards. Once you vote, the platform locks your YFI token for three days so that you cannot unstake the receipt.
Cover: Cover is the insurance that allows users to draw coverage against the financial loss of investing in various smart contracts and protocols that exist on the Ethereum Blockchain. Nexus Mutual has underwritten the code for Cover.
How Does Yearn Finance Work?
Yearn.Finance is designed to autonomously automate users' funds to more powerful profit-giving platforms by locating the protocol that currently offers the best annual percentages return (APR). It is considered a revolution in the Decentralized Finance sector with its potential yields parallel with StableCoins. You can perceive Yearn.As a distributed lending platform, finance allows users deposit ERC-20 StableCoins like DAI, USDC, USDT, TUSD, or SUSD into a protocol. Stakeholders get an equivalent amount of tokens in return, so technically, a YFI token is similar to any other ERC-20 token. The Yearn Finance protocol does not lend the deposited StableCoins to any particular protocol. Instead, it performs an automatic zap of tokens into a protocol that shows the highest yield and this way Yearn Finance optimizes the users' profit. Comparing YFI and other tokens shows that Yearn holds better automation and never before achieved flexibility in the history of Blockchain. The best thing about Yearn is that network charges you a nominal fee deposited into the pool on the platform, and then it is distributed among the stakeholders in the form of dividends.
Yearn Finance ecosystem
The yearn finance ecosystem, enable its user to get benefitted from different products. It is expected that the Yearn finance ecosystem is still developing as there exist some shortcomings and issues that are to be addressed immediately to promise a bright future of the protocol and the stakeholders. According to Cronje's report, the Yearn Finance currently includes the following products in its ecosystem:
- yTrade: DAI facilitates the use of leading StableCoins in the platform like USDC, TUST, USDT, and SUSD, carrying the leverage rates of up to 1000 times. Users can utilize the leverage ratio maximum up to 250 times, is you want to trade free of cost and do not wish to pay the required fee for transactions.
- iLiquidiate: It is an automated liquidation engine utilized by Aave users.
- iLeverage: Utilizing USDC as the main underlying asset in DAI Vault, it enables users to take positions with a five layered leverage ratio.
- iPool.finance: The first pool to swap between the two curves i.e., y.curve.fi and sUSD Curve.fi pools.
- ySwap: It is still in underdevelopment and is not available for general use. It is a fixed/stable Automated Market Maker (AMM) used to collect interest and rewards while providing unilateral liquidity and impermanent loss (IL) mitigation. ySwap creates decentralized pools which are available for traders to buy and sell.
- finance: It is an entirely new product that is yet to get a name to be recognized. It will be available for use by the Aave users who focuses more on credit.
The system mainly contains three major components, which are:
- yVault
- Controller
- Strategies
yVaults: yVaults are simple token containers,, and they work like Yearn Tokens. This converts your CRV into yveCRV and enabling you earning a continuous share of Curve fees. Moreover, track your share of an ever-growing pool.
Controllers: Controllers in the ecosystem are control mechanisms. The controller plays the role of gatekeeping interface between strategies and vaults, and they also oversee the communication and fund-flows. Controllers work to flow the deposits and withdrawals in and out through them. The controller also helps handle strategy migration and enables moving funds from an old strategy to a new one.
Strategies: Strategies are necessary containers, they are specific on what they want to contain, and their role is to optimize profits on that asset the best way possible, in a loss-free manner.
Yearn Finance is the latest arrival in Cryptocurrencies that is continuously gaining a lot of attention from users and stakeholders. Its ability to enable regular people accessing advanced strategies seems to be holding a promising future in the world of Crypto technologies.
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