Yearn Finance (YFI)

Summary

Introduction
The history of the Yearn-finance team
How does Yearn-finance work?
How does Yearn Finance optimize returns by using external protocol pools?
How does Vault ROI work on Yearn Finance?

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Introduction

Yearn Finance(live YFI quote) is the name of a DeFi protocol that runs on Ethereum.
Its aim is to offer yields optimized for yield farming.
As a reminder, yield farming is an investment that generates passive income in DeFi (decentralized finance).
By entrusting your cryptos or tokens to a DeFi application(Aave, Uniswap, Compound, etc.), you earn interest. The interest percentage depends on the protocol used and the duration of the loan of your cryptos. The DeFi sector has grown considerably in recent years, thanks in particular to the Ethereum blockchain. Today, there are many applications that enable you to engage in yield farming. So how do you choose the best yields? There are two ways! The first is to monitor each application.
Although effective, this is not the most efficient strategy, as it requires a lot of time.
The second, much simpler, is to entrust your cryptos to Yearn Finance, who will find the best DeFi returns available for you!
Yearn Finance can be considered a DeFi aggregator or broker.
The application is connected to the DeFi protocols of the Ethereum environment and offers you the most interesting returns available.

Buy YFI tokens safely with Coinhouse

The history of the Yearn-finance team

The Yearn Finance project wasn’t always about DeFi.
When it was launched on the markets in 2020, the YFI token was simply a speculative asset.
A bit like meme coins, YFI had a highly volatile price that was based solely on speculation.
Launched in July 2020 at around €1,000, its price quickly exploded and surpassed Bitcoin(live BTC price) to reach €32,000 by mid-September 2020.
A few months later, the developers of Yearn Finance will flesh out the project.
Instead of being a purely speculative asset, the YFI token becomes a token specialized in DeFi yield farming.
At present, YFI is Yearn Finance’s governance token.
The YFI token’s ATH has been fueled by the launch of the Woofy corner.
Woofy is a DeFi token linked to the Woofy Finance platform.
For the marketing aspect, Woofy uses a dog meme, a bit like the Shiba Inu and Dogecoin.
More importantly, this meme token is launched by Banteg, one of Yearn Finance’s developers.
While the link between this « DeFi token meme » and Yearn Finance is only implicit, it will be enough to boost YFI’s share price.
On May 12, 2021, the YFI token reaches a record price of €85,944.
The Yearn Finance team is initially made up of three well-known DeFi developers known by the pseudonyms Banteg, Milkyklim and Tracheopteryx.
But the best-known person associated with the creation of Yield Finance is André Cronje.
A leading crypto player, André Cronje is sometimes referred to as the « Godfather of DeFi ».
Born in Cape Town, South Africa, André Cronje graduated in law from Stellenbosch University in 2003.
The story goes that during his studies, André Cronje was roommates with a computer science student, which inspired him to take up programming and science.
Before creating Yield Farming, André Cronje published several code reviews for Crypto Briefing and then worked for the firm responsible for developing the Fantom blockchain.
Finally, in 2020, he founded iEarn, which later became Yearn Finance.
Since then, André Cronje has continued to work on several DeFi projects, such as Keep3r, a marketplace for blockchain services.
In all, he is estimated to have been involved in 25 DeFi projects.
He is also very active in the media on all crypto topics.

How does Yearn-finance work?

The Yearn Finance protocol is based on complex algorithms.
Nevertheless, the basic principle is simple: you entrust Yearn Finance with cryptos, and the protocol takes care of placing them on high-yield applications.
How does Yearn Finance work?
Yearn Finance’s core functionality is called « Vaults« .
In simple terms, a Vault can be compared to a « safe » that holds a token (or stablecoin) and uses it to automatically generate a return based on market opportunities.
The Vault principle is a win-win for the user, since it enables gas costs to be mutualized, and returns and capital transfers to be automated when an opportunity arises.
While the vaults involve highly complicated algorithms, they remain transparent to the user, who simply has to choose his or her vault.
Yearn Finance has reserves (or pools) for each token or crypto supported by the protocol.
For example, let’s say you want to place DAI stablecoins.
By placing your DAIs in the vault, Yearn Finance will automatically distribute yDAIs to you.
The « y-jetons » (in the case of Vault v1) are « wrapped » tokens, corresponding to LP tokens, i.e. Liquidity Provider tokens.
These are tokens given to those who provide liquidity in DeFi.
These tokens are exchanged at a 1:1 ratio, i.e. one yDAI has exactly the same value as one DAI.
With this system, users can recover their DAI at any time by exchanging them for yDAI.
In addition to recovering their funds, they will also receive the capital gains generated during the period in which they made their yDAIs available.
Yearn Finance’s developers are constantly improving their products.
After a first version of Vaults, two further updates have been rolled out: Vaults v2 and Vaults v3. With Vaults v1, a vault was linked to a single yield strategy.
With Vaults v2, each vault can interact with up to 20 different yield strategy smart contracts (pools).
With Vaults v2, tokens received by a user are prefixed with « yv » rather than « y ».
In concrete terms, if you deposit USDC on a Vault v2, you will receive yvUSDC.
The main new feature of Vaults v3 concerns smart contracts.
With v3, they are compatible with the ERC-4626 standard.
This is a very specific standard that rationalizes and standardizes the technical parameters of a yield farming operation.
The token prefix received by contributors remains unchanged at « yv ».
The two largest Vaults available on Yearn Finance are linked to Ethereum(yETH) and Curve DAO Token(yCURVE).

How does Yearn Finance optimize returns by using external protocol pools?

Yearn Finance investment strategies involve external protocol pools such as Curve.
The way they work is complex.
To understand how the different pools interact, let’s take a simple example with a Yearn Finance Ethereum Vault (yETH).
The steps in Yearn Finance’s strategy are as follows:

A user deposits Ethereum in an Ethereum Vault and receives yETH ;
The yETH are put on the MakerDAO loan DeFi protocol as collaterals;
With this collateral, DAI is borrowed with a collateralization ratio of 200%.
Borrowed DAIs are then placed in Yearn Finance’s DAI Vault, which uses investment strategies linked to the Curve Pool (CRV) containing stablecoins (DAI, USDC, USDT, etc.);
By participating in the Curve liquidity pools, you earn LP tokens (Liquidity provider tokens) which are put into the Curve Gauge pool to work and earn additional CRV tokens;
When users wish to withdraw their funds, they get back the Ethereum they originally put in plus rewards earned through interactions with curve pools.

This type of strategy generates high returns.
In this example, it can be as high as 60%.

How does Vault ROI work on Yearn Finance?

Although yVaults involve compound interest, this is not fixed as it is with a traditional savings account.
Consequently, the concept of APY and APR is not the most accurate way of estimating yVault gains.
It’s better to talk about ROI (Return On Investment).
Let’s take a look at how ROI is calculated with a Vault Yearn Finance.
As explained above, when a user places a token in a Vault, he receives the equivalent in ytoken or wrapped token.
Vaults involve the formula F = I * P with :

F: the number of tokens in the vault ;
I: the number of wrapped tokens distributed to users ;
P: the « price » of wrapped tokens.

If P is equal to 1, the user receives exactly the same number of tokens as he deposited.
If he has deposited 10 DAI, he receives 10 yDAI.
Then Yearn Finance’s investment strategies come into play.
The aim is to increase P so that the user can earn a capital gain.
From the above formula, we deduce that P = F / I. P therefore evolves according to the ratio of the number of wrapped tokens distributed to the total number of tokens in the Vault.
While the number of wrapped tokens is fixed, the number of tokens in the Vault continues to increase through yield interest.
P therefore increases over time, increasing the value of the user’s wrapped tokens and generating a yield.
Let’s take an example to better understand Vaults theory.
Let’s imagine a Vault that contains 10,450 tokens (F) and has distributed 10,000 wrapped tokens (I).
The price P is 1.045 (10,450 / 10,000).
You want to deposit 100 yCRV in this Vault.
Applying the above formula, P = 1.045 and F = 100, giving 95.7 yUSD (100 / 1.045).
The vault’s investment strategies are then put to work, using the tokens you’ve deposited.
The number of tokens in the Vault has therefore increased.
Let’s say it’s now 10,500.
As the number of wrapped tokens distributed remains unchanged (10,000), the « price » P is now 1.05 (10,500 / 10,000).
Multiplying P by the number of wrapped tokens you hold (95.7), you see that your yCRV balance has increased to 100.5 (95.7 * 1.05).
You now hold 100.5 tokens, representing a yield of 0.5%.

What are Yearn-finance tokens used for?

YFI is an ERC-20 token, built on the Ethereum blockchain and fulfills two main roles.
Firstly, it can be staking in order to receive veYFI tokens.
With these veYFi tokens, you’ll be able to enjoy greater rewards, as you’ll receive a fraction of the fees paid by users of the protocol.
YFI tokens can also be used to govern your DAO.
By owning YFI tokens, you can make proposals and take part in votes. Votes are held on the operation of the protocol, the addition of new services, the increase of the YFI token ceiling, and so on.
In simple terms, one YFI token equals one vote.
Before officially submitting a proposal, a user will discuss it on the Yearn discussion forum.
If there seems to be a lot of interest in the proposal, it can be submitted via a YIP (Yearn Improvement Proposal).
Voting takes place on the Ethereum blockchain.
Finally, it should be noted that voting rights on Yearn Finance can be sold via the yBribe module.

Tokenomics

The distribution of the YFI token was designed to be « fair » from the outset.
How so?
Most crypto projects allocate a percentage of their native token to their founders and early investors.
This principle enables the project’s early contributors to be remunerated.
However, it’s not fair in the sense that a small category of investors ends up with a lot of tokens and therefore a lot of control over the protocol.
That’s why, with Yearn Finance, André Cronje wanted to do things differently, with greater decentralization.
The distribution of YFI tokens is fair in the sense that all tokens are marketed transparently.
In concrete terms, Yearn Finance’s creators have no « right of way » and therefore do not own any YFI tokens by default.
At launch, YFI tokens were distributed to every investor wishing to use the protocol, i.e. those depositing cryptos in one of the liquidity pools.
After a one-week launch, the Yearn Finance team decided to limit this distribution of YFI tokens to 30,000.
The team then decided to increase this token cap via Proposition 57.
This proposed the creation of 6,666 additional YFi tokens.
The aim is to better remunerate participants in the Yearn Finance protocol.
In total, one third of these 6,666 tokens are intended for current contributors.
The other two thirds will be paid into the Yearn’s Treasury for future contributors.
This proposal was accepted with over 83% of positive votes.
The maximum amount of YFI tokens created is therefore capped at 36,666 tokens.
At present, the only way to acquire YFI tokens is to buy them on the market.

TECHNICAL DATA

Compatible wallets	Trust Wallet, Ledger, Torus, MetaMask, imToken, Assure Wallet, SafePal
TVL	346 million (to March 7, 2024)
Pair of cryptos available	250 strategies and 100 yVaults on Ethereum
Capitalization	295 million (at March 7, 2024)
Transaction volume	75 million (to March 7, 2024)
Security	Version 0.2.1 audited by MixBytes Version 0.3.5 audited by ChainSecurity Version 0.4.2 audited by Trail of Bits
Fees	Vault-based management fees & performance fees

What are Yearn-finance’s projects?

Yearn Finance has an overview of the various DeFi products available.
The protocol therefore works in partnership with a very large number of decentralized applications for borrowing, lending, etc.
Yearn Finance works with the Ethereum ecosystem and offers DeFi products available on Ethereum as well as on Fantom, Optimism, Polygon, Base and Arbitrum.
The best-known DeFi applications currently available on the Ethereum ecosystem are AAVE, Uniswap, SushiSwap, Spark, Curve and Compound Finance.

How to buy Yearn-finance?

Go to your Coinhouse application and log in to your personal space or create an account.
Go to the buy/sell section.
Select the amount you wish to invest, and the currency of your choice (in this case YFI).
Once your transaction has been validated, you’ll find your YFIs in your portfolio.

Coinhouse's opinion

Yearn Finance is an interesting project that has overcome its « meme corner » past to establish itself as one of the most important DeFi protocols.
Yearn Finance is a truly useful tool for generating passive income.
As a DeFi aggregator, Yearn Finance optimizes your investment to maximize returns based on market opportunities.
As well as saving you time, Yearn Finance saves you the trouble of learning the complex DeFi mechanisms of Yield Farming.
While Vaults’ investment strategies involving external protocol pools are difficult to understand , using the protocol is very straightforward.
You don’t need to know the details to make your cryptos grow with Yearn Finance.
Just connect your wallet, choose your Vault and Yearn Finance takes care of everything!
With its comprehensive dashboard, you can keep track of the interest you’re earning, and withdraw your funds (and their capital gains) at any time.
Like all investments, Yearn Finance involves risks you need to be aware of.
We recommend that you read up on the protocol before investing your money.
Also, limit your investment to what you can afford to lose.