What if I were to tell you that there is a cryptocurrency out there is worth more than Bitcoin? You’d probably think this writer must be crazy and that he should be fired for making up such rubbish. But, I kid you not; such a crypto does indeed exist and has been around for a bit. This crypto is token that resides on the Ethereum platform. It is currently priced at $40,343.12, while Bitcoin is simultaneously valued at only $33,566.23! How crazy is that?
So what's this token? That would be YFI, the native and governance token of the yearn.finance protocol. So what makes it so special and valuable? Well, that is what this Yearn Finance review article is going to discuss and illuminate. We will dive down into the details of this protocol, the tokenomics of this unique native token, and if whether or not you should consider having a bit of it in your portfolio, provided you can find some that is.
What is yearn.finance?
The main element of yearn.finance is its capacity as an optimizing yield earning farming protocol. In simple terms, yearn.finance seeks out the best rate of returns from different DeFi protocols. Instead of having to individually scan every single lend/borrowing and financial protocol within an entire blockchain ecosystem in order to find the highest interest rates, yearn.finance does that for you. That’s it. I mean, really, that is it. All you have to do is deposit your crypto and just wait for those rates to start coming in.
yearn.finance provides a few features. It provides vaults, lending aggregation, yield generation, and insurance.
Vaults are pools that automatically generate yield based on opportunities present in the market with minimal risk. Vaults benefit users by socializing gas costs, meaning that instead of depositing their crypto to another DeFi protocol per user, yearn.finance instead would collectively send all of the particular cryptos, let us say all of the deposited USDC onto Aave in one go, thus saving on gas. Users do not need to have any foreground knowledge or technical experience about the protocol, nor do they need to be involved. Vaults represent a form of passive-intensive strategy.
The second product is its Earn features. Here, users deposit their crypto to lend them out to borrowers. Funds are shifted between dydx, Aave and Compound automatically, whichever has the highest interest rates. Users also have the option to lend their crypto on Cream finance protocol.
The third product is its insurance coverage feature. Here, users can use the ‘Cover’ feature for insurance coverage on their crypto. Yes, you can protect your crypto with insurance to protect yourself against losses that result from smart contract bugs and hacks.
The fourth product that this protocol offers is its Zap feature. This allows users to save on high gas costs by allowing them to quite literally zap their way to and from the Curve protocol pools. Instead of going through the long way, by obtaining some of the ytokens on yearn.finance, then hopping over to Curve and depositing there, thereby having to do multiple transactions; the Zap features allows you to do all of that with just the click of a button.
The other feature is their Statistics feature. This is basically an overview of what your rate of return would be for certain cryptos across the various DeFi protocol.
The final feature is their Experimental feature. Here you have the option of using some of the experimental vaults. Currently, the vault accepts CRV in exchange for a perpetual claim on Curve DAO admin fees across all yearn protocols. Be mindful, though, that once deposited, you can never have your CRV tokens, ever.
This is just the easy version of how yearn.finance work, but the reality is that its technicalities are hugely complicated.
Founders and Team
Yearn.finance is the brainchild of Andre Cronje. A well-known and highly respected software developer, he was busy building his own optimized yield earning protocol when he realized that the DeFi space had become so complicated and confusing for new users that he felt there had to be an easier, more intuitive way to earn interests without having to constantly look at many different projects for those high yields. Working closely with Curve, Aave, he developed a new project which initially became known as iearn, later becoming yearn.finance.
What is also really interesting is that Cronje did not keep any of the protocol’s native token, YFI token, for himself. There was no pre-mine nor any pre-sales for the developers and any early investors. This means that it was a fair 100% distribution for those who first got involved.
According to their Yean manifesto, yearn.finance is not a company, it does not have any investors, it is agnostic to price, it does not have a legal entity, nor a foundation, nor is it owed anything from anyone. What it is, is a collective of contributors, an equal opportunity protocol, it invites users with ideas to share them, it also invites anyone to check their code and look for bugs, it encourages merit, it allowed YFI holders to govern, but not to tell others what to do. It is community-driven.
That being said, the protocol is operated and maintained by independent developers and is governed by YFI token holders.
Tokenomics & Governance
Now, I know you are dying to know about the tokenomics of YFI to see why it is so valuable. First off, the last letter in the ticker name is not pronounced as ‘ai’. Rather, Andre intentionally pronounced the ticker name as ‘Ju’, as if it was spelled ‘YFU’. The community also decided to run with it.
Now that we have that out of the way let us discuss its tokenomics. YFI is the governance token of the yearn.finance protocol. As previously stated, it had no pre-sale or pre-mining. Not even Andre nor any of the developers were given a limited amount of YFI as payment for their contribution. Users could only earn YFI by providing liquidity. The liquidity mining program ran until it had minted the entire supply cap at 36,666 YFI tokens.
Yes, that is correct, only 36,666 YFI tokens were ever minted. The supply cap was originally only 30,000, but it was subject to change as part of YIP-57, increasing it to 36,666. This is a major reason, but not the only one, why its value is so high.
Users who hold YFI are eligible to participate in governing the protocol. When a proposal is up for a vote, it must meet quorum requirements (>20% of the tokens staked in the governance contract) and generate a majority support (>50% of the vote) before it is implemented by the nine members' multi-signature wallet. Changes must be signed by six out of the nine wallet signers in order to be implemented.
In addition to governance, users can also stake their YFI (which they have to in order to participate in governing), making the protocol have a kind of proof-of-stake consensus. As a reward for staking, users are entitled to a percentage of the profits generated by the protocol—proportional to your stake—, and you receive voting rights on governance decisions.
On April 25, 2021, a YIP-61 Governance 2.0 was passed and executed, allowing yearn.finance to begin the transition into a multi-DAO structure managed by constrained delegation. The reason for this change is to prevent the protocol from being stiffened by bureaucracy while maintaining a sufficient level of decentralization.
Multi-DAO refers to the diverse number of other decentralization autonomous organizations (DAOs) that contribute to the protocol. These groups consist of YFI holders, yTeams, and the Multisig.
Ultimately, token holders have the final say over what yTeams exist, who is part of the Multisig, and the limitations of each group's operational control. The term ‘constrained delegation originates from token holders delegating specific powers to various groups that build and manage yearn.
A simplified flow of governance would look like this:
- YFI holders create, destroy and define limitations of yTeams
- yTeam notifies yTx of a decision
- yTx creates a delegated transaction and sends it to the Multisig
- Multisig executes or vetos the transaction
For more information about the responsibilities of YIF token holders, please click here.
Who is This Product For?
This project is for anyone who is looking to receive the best yields or APY for their crypto but is unable, or are unwilling, to spend hours looking for the best one. yearn.finance does that for you.
yearn.finance Version 2
Since September 2020, the protocol saw a drastic drop in locked token assets, down 64%. Needing a serious revamp, Version 2 was recently released, allowing V1 and V2 integration, in-house management of all vault token assets, and real-time data updates. The Cover and Curve protocols are also being fully integrated into the new version.
A ‘lite mode’ has also been developed to provide an interface to Zapper, which is supposed to help to simplify the user experience.
The intention of the V2 vaults is to provide users with higher yields, as opposed to the V1 vaults that have seen a drastic fall in APY, from 3 digits to 2 digits.
The WOOFY token is considered to be the blue dog companion token of YFI and is exchangeable between the two. This token was created to solve two problems. It prevents YFI from being dog-themed and due to the price of YFI being too high.
Tutorials & How-to Videos and Links
Below are two videos that provide additional information about the protocol:
Below is a link on how to use yearn.finance:
Below is a link on how to Woof and Unwoof
Despite the success of the protocol last year, it should come as no surprise that it has been facing competition.
One project that comes to mind is Harvest finance, another high yield optimizer protocol that has very similar features to yearn.finance. Although its native token, Harvest, has not seen much activity, it can still be considered as a competitor due to its ability to provide the highest yield for users from various other DeFi protocols.
Another competitor is an upcoming protocol that resides on the Binance Smart Chain. planet.finance is another high yield optimizer protocol that also seeks out the best yielding strategies and protocols to farm. It launched only a few months ago on BSC and has been more tokens being locked in its faults. Additionally, this protocol has additional advantages that could make yearn.finance runs for its money. Firstly, planet.finance resides on BSC, where transaction costs are way cheaper than on Ethereum. Secondly, through their blue and red planet features, they offer high yields if users deposit various stablecoins, BTC, ETH, BNB, CAKE, and others. Because the protocol is new, users earn AQUA tokens, the protocol’s native token, as a reward.
The max supply for AQUA is only 100,000 but has a burning mechanism, decreasing the supply and thereby increasing its price.
In addition, the protocol is planning on launching its own lend/borrowing feature on a green planet, where users can supply liquidity for swapping while earning more AQUA tokens. There will also be a purple planet, which has an insurance coverage feature.
Yearn Finance Review – Conclusion
Yearn.finance has the advantage of being one of the first optimizer protocols to be launched and thus, has seen great success. The price of its YFI token is a testament to that. However, that is not to say that the project has not been experiencing internal issues and external competition. With the crypto space expanding ever more rapidly, other projects with similar features are starting to pop up, making it that much more intense to continue being relevant in every dynamic ecosystem.
This is why it is ever more present for yearn.finance to continue upgrading and developing in order to continue to stay ahead of the game. Its YFI price, while still high, has seen a fall in price lately, even before the May 2021 Bitcoin price crash. And thus far, it has been delivering. Its recent V2 does seem to promise users high yields, at least enough for more tokens to be locked. And there are more changes on the way that will continue to allow it to own a good portion of the market.
Yearn Finance Review
Ease of Use
- Massive yield farming
- Jump in and out of a liquidity pool
- Highest APR advantage
- Maximum Profit
- Lowest Cost
- Insurance Covering
- Hacking Possibility
- Few Services
- Only deals with tokens
- Only special for yield farming