What is Yearn Finance (YFI) and how does it work? Table of Contents

This year, cryptocurrencies and blockchain-based projects will set record highs in growth and value. Yearn Finance is also known as YFI or Yearn. Yearn Finance is one of the ERC-20 tokens and currently has a price of over $25,000 per token. This is a huge price increase that exceeds the value of Bitcoin. Despite the remarkable achievements of the project and its vision, there are many people who do not know about it.

If you are looking for an answer to the question, “What is Yearn Finance and how does Yearn Finance work?

What is Yearn Finance?

Yearn Finance is an open-source Decentralized Finance (DeFi) lending protocol based on the Ethereum blockchain. It serves as an interesting platform that maximizes user investment by automatically moving user funds between DeFi loan protocols such as Compound, Dydx, Curve, and Aave.

At the moment, Yearn Finance is one of the most popular and decentralized DeFi projects in the cryptocurrency space. YFI is the native cryptocurrency of Yearn Finance. Unlike Bitcoin, YFI is a governance token that boasts an autonomous protocol.

This means that platform users have the right to vote in the direction of the protocol that is most favorable to them according to their opinion. For now, YFI is one of the largest Ethereum-based tokens to prioritize automated interest farming strategies.

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How does Yearn Finance work?

Yearn Finance is designed to self-transfer user funds to providers that offer more profit by finding the protocol that offers the best annual rate of return (APR). It is regarded as a groundbreaking discovery in the DeFi space due to its returns parallel to stablecoins.

A decentralized lending platform that allows users to deposit ERC-20 stablecoins into the protocol, such as Dai (DAI), USD Coin (USDC), Tether (USDT), True SD (TUSD), and SUSD (SUSD). Think of Yearn Finance as finance. Technically, the YFI coin is like any other ERC-20 token. However, instead of lending the deposited stablecoins to a specific protocol, the Yearn Finance platform automatically converts the token to the protocol with the highest yield, maximizing user profits.

Comparing YFI to other tokens, Yearn Finance has better automation and flexibility than the blockchain did not have before. What’s the best thing about it? The network charges only a small fee deposited into the platform’s pool, which is then distributed as a dividend among YFI token holders.

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Who created the Yearn Finance?

Andre Cronje is the founder of the famous DeFi protocol, Yearn. Although the protocol was launched in July 2020, it has already achieved significant penetration in the cryptocurrency space. At the beginning of September, the platform’s native token, YFI Coin, reached its peak value of around $44,000.

Before the platform, Yearn Finance’s original goal was to handle money for Kronze’s friends and family. He was looking for a way to inject stablecoins for profit. The most popular protocols at the time were Aave, Fulcrum, Complex, and dYdX. Therefore, Kronze will manually check these protocols to see which one has the highest annual return (APR).

In order not to pay the costs involved in moving tokens manually, he coded several smart contracts that can do the calculations for him. Then he wrote yTokens over and over again. These yTokens were able to read the standardized annual rate of return (APR) output and could be moved elsewhere, yielding the best returns.

After that, Andre first used it himself before opening it up to others, which became the basis of Yearn Finance. The increase in the number of users had a positive effect on the protocol. The reason is that whenever a user interacts, the smart contract checks if a rebalance is required. The higher the interaction frequency, the greater the number of moves between protocols. And the more you change, the higher your returns.

Currently, yearn has a higher total return than its own downstream sources. The concept of this is relatively simple. The protocol sends more capital where the yield is highest.

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How does the YFI (Yearn Finance) token work?

YFI is the native token of the Yearn Finance platform. YFI is wholly and simply a governance token, allowing holders to vote on decisions regarding their impact on Yearn.

1. YFI Governance Token

YFI is an ERC20 token used for all governance activities on the platform, such as voting on protocol upgrade/change proposals. So far, only 30,000 YFI coins have been minted and circulated.

To participate in the protocol, users must first stake their YFI into a governance contract. Then, they will regularly receive voting rights and a portion of the protocol revenue for each prize in Yearn. In order to claim a reward, users must vote and once voted, YFI tokens will be locked for 3 days. This means that you will not be able to unstake your assets.

2. YFI Total Deposit (TVL: Total Value Locked)

First, the total deposit (TVL) represents the dollar value of all tokens locked in smart contracts in a decentralized loan project. As a result of YFI’s total deposit (TVL) analysis, most of the upper limit (29,968 coins) has begun to circulate. The YFI token first hit an all-time high in mid-September 2020, when the protocol’s total deposit (TVL) soared to over $767 million, with the YFI price reaching $43,873. As buying sentiment grew, the YFI value outperformed 13,000% growth and the YFI/USD exchange rate surged. What was the final result? YFI is now the first cryptocurrency to be worth more than Bitcoin (BTC) per unit.

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How can you make profit with Yearn Finance?

Yearn Finance has several features and services that users can use right away. The Yearn component of this protocol allows users to exchange several stablecoins, including Dai (DAI), USD Coin (USDC), Tether (USDT), True SD (TUSD), and SUSD (sUSD). It allows you to deposit money. Currently, Yearn is looking for a DeFi platform with the highest returns.

The reason Kronze created Yearn in the early days of interest farming was to move stablecoins to the best place for stablecoins to grow, depending on the circumstances.

Over time, with upgrades and improvements for protocol security, Earnings become more sophisticated. Thus, the size of the protocol’s user base means that it is trying to estimate an optimal allocation, rather than dumping all the wealth owned by Yearn in one place. Quotas are constantly changing as different users enter and exit the liquidity pool directly.

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Yield Farming

Interest farming started gaining popularity after people realized the potential of holding crypto assets at a negative rate of return. In the Yearn protocol, interest farming sees crypto assets moving parallel to a liquidity pool that provides an Annual Percenttge Yield (APY) every week. Also, this sometimes means moving to a more dangerous pool.

In June 2020, putting a stablecoin (USDT, USDC, DAY, or TUSD) into Pool Y would have yielded an annualized return (APY) of approximately 896%. Currently, over $650 million in crypto assets are accumulated in Y Pool. In this way, it becomes one of the best returns in the field of decentralized finance.

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Where can you use Yearn Finance?

Vaults are one of the main components of Yearn Finance. They are mechanisms that temporarily hold the interests of stakeholders. These profits are distributed to YFI holders once the amount in the treasury is over $500,000. And the profits are distributed to the curve yPool (yCRV) tokens.

Vaults represent pools of funds that follow a specific strategy. Vaults allow community members to work together to craft a strategy to determine the best return protocol. They allow YFI coin holders to use any asset in liquid form. Liquidity is used as collateral, and collateral is safely managed to avoid default. This protocol borrows stablecoins, allowing them to be used for interest farming. Then reinvest the acquired stablecoins.

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How is Yearn Finance different from other Cryptocurrencies?

Yearn Finance works similarly to other lending platforms. Deposit all ERC20 stablecoins such as Dai (DAI), SDCoin (USDC), Tether (USDT), TrueSD (TUSD), or SUSD (SUSD) into the protocol and receive an equal amount of yTokens (e.g.: yDAI, yUSDC, yUSD, yUSD ). yTokens are like other ERC20 tokens. It then creates sub-stablecoins that can be lent

Instead of lending a stablecoin to a specific protocol, the Yearn Finance platform automatically converts the token to the protocol with the highest yield, maximizing user profits.

The network charges a small fee for the amount deposited in the platform pool, and only YFI token holders can access it.

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Is Yearn Finance sustainable?

The purpose of Yearn Finance has always been long-term sustainability and symbiosis. André Kronne, the creator of Yearn Finance, designed the ecosystem from the ground up to help with engagement and optimized mutual settings. When we proposed Yearn Finance, the goal was to modify all the systems involved to benefit all participants and YFI coin holders, not to benefit Yearn.

Yearn is itself a profit-making system. It was profitable from day one and we were able to recover all the necessary expenses, so we were happy not to have to allocate tokens when playing by the rules like everyone else.

Currently, YFI has a market cap of $7 million and a trading volume of $3 million per 24 hours. At the same time, there are more than 29,000 active YFI trades in 151 booming markets.

Most experts agree that Yearn Finance is very profitable and sustainable. The high yield is mainly due to YFI’s speculative enthusiasm for protocols with liquid mining programs. The reason “farmers” can achieve triple-digit or higher “returns” is that speculators keep buying new tokens from exchanges. This means that the speculator pays for the “revenue” that the “farmer” gets as a direct concept.

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What are the problems and risks Yearn Finance

Although YFI is currently a pioneer in DeFi and agriculture, YFI is not the only lending platform. Several (sometimes dubious) YFI forks have appeared on the market recently, as have new interest agro aggregators like APY Finance, and wealth management platforms like Set V2. This could be a new challenge for Yearn Finance in terms of competition within the industry.

Moreover, the current income received from interest farming will fluctuate and not last forever. There are many variables that make people stop buying new tokens and focus on things with stable values. This will eventually lead to lower returns. Professionals and crypto enthusiasts are looking forward to the launch of YFI insurance, exchange, leverage, and liquidity products that will diversify YFI revenue streams and provide option value to YFI holders.

Currently, YFI remains one of the most exciting advances in decentralized management. The protocol has created a large, diverse, and dedicated community of people who have invested very heavily in the success of. Moreover, Kronje’s leadership and diversification of yEarn products are impressive.

It’s important to remember that YFI is still a work in progress. This may mean that it does not guarantee a successful outcome, but it also means that the YFI token will remain valuable.

Yearn Finance is an open, open-source project that allows anyone to mimic its protocols and concepts. During the year, Yearn met many imitators. However, few companies have the proprietary technology to help Yearn Finance gain an edge over its competitors.

The YFI token value is primarily associated with the community around Yearn, which reflects the trustworthiness of the protocol and the people there. This is unpredictable and should be based only on guesswork.

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Is Yearn Finance better than Bitcoin?

The Yearn Finance Project has received tremendous attention since its inception. After the YFI token surpassed the value of $40,000 in just a few months after launch, many rated it as ‘better than Bitcoin’.

What increases the efficiency of Yearn is the nature of Yearn itself and Yarn’s efficient protocol. For this reason, the number of users of this platform is expected to continue to grow in the future. Especially considering that Kronne has announced an upcoming new Deriswaps and an upcoming yearn and Cream partnership. It focuses on core lending and aims to leverage products that increase returns through leverage.

Kronne’s intentions to ‘oversimplify’ DeFi for the general public turned out to be a win-win that propelled Yearn to crypto stardom. Kronne’s efforts to simplify the process and provide a much better user experience have fueled the popular adoption and growth of YFI.

Yearn’s interest farming strategy entails a high level of risk, but so far the protocol has managed to balance it, and this year has yielded some excellent returns with relatively limited risk.

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