# Understanding yEarn: a beginner’s guide and review

*DeFi aggregator and yield rebalancer*

**Authors:** Manny Reimi

---

Yearn Finance (sometimes stylized as *yearn.finance* ) is a DeFi aggregator
and yield rebalancer.
Funds locked into Yearn contracts are periodically rebalanced between a select
group of lending protocols to maximize yield.

> **TL;DR** : You can get a summary of this article on its last section

In this article, we will be taking an introductory look at Yearn Finance to
better understand all the hype around it in the DeFi space.
In this analysis of Yearn Finance, 5 different sections will be covered,
as follows:

1. legitimacy
1. purpose
1. tokenomics
1. ecosystem
1. summary

## Legitimacy

Yearn Finance was created by Andre Cronje,
a South African hotshot software engineer and self-proclaimed “DeFi architect”
and “one of the older trees” in Crypto.
Andre had been doing code reviews of projects on Bitcoin
($BTC), Ethereum ($ETH),
and others since early on, attracted by the concepts of distributed networks,
and decentralized programmable money.
After achieving vitality with his code reviews,
Cronje joined other projects
and eventually started his own portfolio management project.
Cronje went for stablecoins
because the rest of the market seemed “incomprehensible”
and found himself *yield chasing* on platforms like Compound
($COMP), Synthetix ($SNX), and Balancer ($BAL).
At this point, Cronje started to conceptualize a system
that would (i) save him time in finding
and executing his yield optimization strategies,
(ii) others could use for the same purpose,
and (iii) would get better at optimizing yield for everyone involved
as more people used it.
This was the genesis of the scalable,
distributed system which eventually became Yearn Finance.

![Image](https://storage.googleapis.com/holdex-public/thread/Understanding%20yEarn%3A%20a%20beginner%E2%80%99s%20guide%20and%20review/andre-cronje-photo.png)

The project first launched as iEarn, and rebranded to Yearn.
Vulnerabilities exposed in the contracts in February 2020 almost made Cronje
“rage-quit” his involvement.
Surprisingly, he has been leading this project as a solo developer, self-funded,
and earning no revenue from operating the service beyond the returns available
to all users.
Yearn’s contracts were audited by [Quantstamp](https://quantstamp.com) on July
2020, shortly before Yearn v2 was launched, when the project started to steadily
climb in *total value locked (TVL)*.
As of today, Yearn has >$750M in TVL and ranks 5th amongst all DeFi protocols by
that measurement.

## Purpose

The mission of Yearn is to make DeFi simple and accessible for everyone.
In many ways, the [Yearn web application](https://yearn.finance/#/portfolio) can
be thought of as an entry point to many DeFi services, the main of which is
*yield farming*.

![Image](https://storage.googleapis.com/holdex-public/thread/Understanding%20yEarn%3A%20a%20beginner%E2%80%99s%20guide%20and%20review/y-earn-ui.png)

Yield farming has been a buzzword in the latest eruption of DeFi
(and the subject of many memes 👨🏻‍🌾),
but it simply can be thought of as strategies
that allow you to earn more crypto with your existing crypto holdings.
For example, the launch of the $COMP governance token,
which was distributed with liquidity incentives,
allowed users earning interest by lending their crypto on Compound to “farm” an
additional token if they optimised their lending in a certain way, and that
token could later be sold for the same crypto, increasing “yield”.
As more projects use novel ways to attract liquidity,
more complex strategies develop to farm the best yields.
Yield farming in Yearn happens automatically in vaults or yVaults.

![Image](https://storage.googleapis.com/holdex-public/thread/Understanding%20yEarn%3A%20a%20beginner%E2%80%99s%20guide%20and%20review/y-vaults-ui.png)

Currently, yVaults are basically a token container,
you provide a token and receive a *yToken*
so you can track the performance of the underlying asset.
So, if you provide $DAI, you get `yDAI`.
There are also so-called *delegated yVaults*
that support other assets like $LINK, $LEND, $REN, $SNX,
and $wBTC but still give you `yDAI`
so you do not lose your exposure to your original asset.
The yVault then executes a strategy, which is controlled by governance.
Any rewards additional to the core function of the vault are split between the
strategy creator, the governance ecosystem, and the yield farmers.
The returns are tracked by the growth of, in this example, your `yDAI`.

As “DeFi made simple”, the Yearn FAQ tells you to “do your own research”.
However, it is important to understand
that this product interacts with many other DeFi protocols under-the-hood.
For example, Yearn will optimize your yield between Aave, Compound, and dYdX.
When you deposit a stablecoin in it,
not only are you exposed to the risk of the stablecoin peg failing
and the risk of the Yearn contract being buggy,
but also the risk of the smart contracts from those lending protocols failing.
These risks are “stacked”.
Moreover, you must consider gas prices and other fees upon deposit/withdrawal,
as you may earn nothing or lose money despite having a return by the Yearn dApp
if your return is less than the deposit+withdrawal transactions,
particularly during times of high gas fees.

To interact with Yearn, all you need is to connect a Web3 wallet like MetaMask.
Other
[crypto wallets](https://holdex.io/c/learn/what-is-erc20-compatible-wallet) like
Trust Wallet, Portis, and Torus are also good options.
No KYC/AML is needed.

## Tokenomics

Originally, Yearn had no native token.
However, in July 2020, Cronje decided to experiment with full decentralized
governance, in what is now widely recognized as a *fair launch*, perhaps the
fairest in Crypto since $BTC itself.
The governance token `YFI` will be used for voting and
for receiving economic rewards in Yearn.
A total of 30,000 YFI were minted, and were all released at once,
with Cronje not allocating any for himself and with no premine.
YFI was earned by staking the yCRV LP token received from the
[Curve](https://holdex.io/c/learn/understanding-curve-a-beginners-guide-and-review)
`y` pool.
However, all the supply has been distributed already.
YFI has since become the most successful token launch this year, with a 10,
000x parabolic run and yields of up to 1,000% during its staking period.
Impressive that a token Cronje announced by saying it would be “completely
valueless” not only proved so valued by the market, but gave the whole
Crypto-Verse that roar 🦁 with echoes of the 2017 days of the ICO craze.

![Image](https://storage.googleapis.com/holdex-public/thread/Understanding%20yEarn%3A%20a%20beginner%E2%80%99s%20guide%20and%20review/when-moon-lil-bubble-cover.png)

YFI has been used to vote dozens of times already via on
*Yearn improvement proposals (YIPs)* for protocol upgrades via Yearn’s
[ygov.finance](https://ygov.finance/vote) sister domain, with the first seven
votes already held the week after launch.
The community has decided to add withdrawal fees of 0.5% to the yVaults
and distribute them to YFI holders.
There may be the possibility to mint or stake YFI and receive incentives
or inflation in the future, but the community has yet to come to a decision.

YFI is traded in secondary markets as well.
According to
[CoinMarketCap](https://coinmarketcap.com/currencies/yearn-finance), YFI is
found with the most volume and liquidity on the following exchanges:

| Exchange | Trading Pairs |
| --- | --- |
| Binance | $YFI / $USDT, $CRV / $BTC, $CRV / $BNB, $CRV / $BUSD |
| Uniswap | $YFI / $wETH |
| OKEx | $YFI / $USDT, $YFI / $BTC, $YFI / $ETH |
| 1inch | $YFI / $sUSD, $YFI / $ETH |
| Huobi | $CRV / $USDT, $CRV / $BTC, $CRV / $ETH |

## Ecosystem

Andre is still the sole developer of Yearn,
but the community has grown considerably,
and since the protocol is now effectively in the hands of YFI holders,
an ecosystem of Yearn members, or *yCosystem*, has been birthed.
Check out the different components of the Yearn ecosystem on
[ycosystem.info](https://ycosystem.info/).
Moreover, it is fair to say that these days,
yield farming is its own community with its own subculture
(and quality memes), and Yearn is very much part of that.

![Image](https://storage.googleapis.com/holdex-public/thread/Understanding%20yEarn%3A%20a%20beginner%E2%80%99s%20guide%20and%20review/virgin-trader-vs-chad-yield-farmer.png)

### yDAO — Yearn Community Funding

The yDAO has been set up with the specific purpose of *funds allocation*.
By keeping it separate from the protocol-level governance,
the Yearn community can focus solely on funding those projects that,
according to their sentiment and impact, add value to the Yearn ecosystem.
Their approach is similar to other projects who have set up a so-called
*grantsDAO* but goes beyond that by including funding for foundation initiatives
normally funded by the core team.
What this allows, for example,
is should extra manpower be needed to complete a sprint for Yearn itself,
the DAO could fund out of this community chest called a `guildbank`.
Currently, the `guildbank` has 413,000 DAI and 2.15 YFI in reserves.

### Developer & Power user support | Roadmap

Unfortunately, the normal resource for developers
which would be the [Yearn docs](https://docs.yearn.finance/) is not very
up-to-date.
It does not detail the functionality of the newer yVaults or integration details
for other devs, albeit it does list the registry of smart contrades
for the original Yearn product.
Head over to the FAQ and you will find the latest info in a Q&A format.

A very complete resource is the community-made site
[Yearn documentation](https://docs.yearn.finance/) which acts as a
quasi-official educational and adoption-encouraging resource.
It shows how to interact with yVaults with both the UI
and with [Zapper](https://zapper.fi/).

### Partnerships & Community | Governance

Yearn lists two projects as having a special place in the ecosystem:
Curve and Aave.
The growth of all of these protocols is interrelated by the design principle of
*composability* that when applied to DeFi is often referred to as “money legos”.
The fact that these protocols are trustless, permissionless,
and distributed means that another DeFi architect dev can rely on them to craft
another dApp.
Curve integrates with Yearn to provide liquidity for its stablecoin market
and in the process gives their users access to market-making fees on top of the
lending interest they get in Yearn, which is possible because Yearn balances
between different protocols like Aave.

The community has implemented an on-chain treasury in
[YIP 36](https://yips.yearn.finance/YIPS/yip-36).
In the early days, Yearn was giving away grants.
Now they have a bounty program with a details explainer of how it works in
[OSC Levels documentation](https://docs.yearn.finance/contributing/operations/osc-levels).

## In Summary

If DeFi is the rocket fuel that’s powering progress on Ethereum at the moment,
Yearn is its liquid hydrogen.
The arrival of the protocol at the scene put it in the middle of the DeFi
ecosystem and powered the latest craze in Crypto: yield farming.
Whether you are looking to participate in the latest yield optimization strategy
or just looking for a simple interface to enter DeFi
and start earning a yield on your assets, give Yearn a try —
just don’t risk more than you are okay losing.

> Excited about Yearn?
> Anything this article missed?
> Reply below to let me know!