TL;DR: You can get a summary of this article on its last section
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.
In this article, we will be taking an introductory look at yEarn Finance in order to better understand all the hype around this newcomer in the DeFi space. In this analysis of Curve, 5 different sections will be covered, as follows:
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 , Ethereum 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 on 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 , Synthetix , and Balancer . 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.
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 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.
The mission of yEarn is to make DeFi simple and accessible for everyone. In many ways, the yearn.finance Web application can be thought of as an entry point to many DeFi services, the main of which is yield farming.
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 optimized 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.
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 exceeding those given by 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
yDAIcodecode. Take a look at the ROIs from yVaults compiled by pyEarn
to get an idea about the performance of yEarn vaults.
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.
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 pre-mine. YFI was earned by staking the yCRV LP token received from the Curve
ycodecode 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.
YFI has been used to vote dozens of times already via on yEarn improvement proposals (YIPs) for protocol upgrades via yEarn’s ygov.finance 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 , YFI is found with the most volume and liquidity on the following exchanges:
|Binance||YFI /USDT , CRV /BTC , CRV /BNB , CRV /BUSD|
|OKEx||YFI /USDT , YFI /BTC , YFI /ETH|
|1inch||YFI /sUSD , YFI /ETH|
|Huobi||CRV /USDT , CRV /BTC , CRV /ETH|
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 . 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.
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
guildbankcodecode 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 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 contracts for the original yEarn product. Head over to the FAQ and you will find the latest info in a QA format.
A very complete resource is the community-made site learnyearn.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.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 its users access to market-making fees on top of the lending interest they get in yEarn, which is possible because yEarn balances between different lending protocols, one of which is Aave.
The community has implemented an on-chain treasury in YIP 36 which calls for a $500k fund to cover for operational costs. Add that to the $120k Gitcoin grant to yEarn and it looks like Andre might finally get paid 🎉!
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.