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🤔 What is Yearn Finance?

Yearn Finance is a yield optimizer built on Etherium.

There are many options for users to store their crypto to earn yield. However the yield on these platforms change in real-time. It is not possible for users to continuously monitor and keep migrating their assets to find the best yield.

Instead, users can deposit their assets in Yearn Finance. And Yearn Finance will find and move your fund to the platform which offers the best yield.

💡 What role does YFI token play ?

YFI is the native token of Yearn Finance ecosystem. It plays following role:

  • Governance: YFI is the governance token for Yearn Finance. YFI token holders propose and vote on updates to the protocol.
  • Staking: YFI token holders can also stake their tokens to get additional rewards. Fees generated by the protocol goes to Yearn Finance treasury. Once $500,000 is in the treasury, all the additional fees generated is distributed among the stakers.

📝 Origin of Yearn Finance

  • Andre Cronje developed IEarn in 2020 to find the best yield for his crypto assets. However, soon the community also started using it.
  • iEarn became a victim of a smart contract hack in February 2020. Hence the protocol was rebranded as Yearn Finance in later part of 2020.
  • Yearn version 2  added the functionality of vaults in 2021.

👴🏻 Andre Cronje - Founder

  • Education:
    • Andre Cronje earned an LLB degree in Law at Stellenbosch University in 2003.
    • He studies computer science at CTI Education Group, South Africa in 2005.
  • Career:
    • 2005-2006: Lecturer in CTI Education Group, South Africa.
    • 2006: Technical Team Leader (4CIT) at Vodacom.
    • 2009-2010: Chief Technology Officer at International Mobile Protection Initiative.
    • 2010-2012: Chief Technology Officer of Mobile Game Card Applications.
    • 2013-2017: Head of Technology (Mfin division) at The Shoprite group of companies.
    • 2019: Blockchain advisor to Aggero, CryptoCurve, Kosmos, Lemniscap, FUSION Foundation, Fantom Foundation, and CryptoBriefing.

😌 What problems does it solve ?

  • Users do not have to spend time searching through countless platforms to find the best yield provider.
  • Most crypto platforms update their returns in real-time. It cost gas fees to keep migrating funds in search of the best yield provider.
  • No trusted third party: Users are in control of their funds. Yearn Finance does not hold funds on behalf of users.
  • No complicated paperwork like KYC and long waiting period is involved.
  • Governments cannot regulate Yearn Finance because:
    • It is deployed on Etherium.
    • Does not have a team.
    • Its governance is decentralized.
  • Efficiency gains: Yearn Finance does not have to run servers and hire an army of developers. This allows Yearn finance to pass on maximum yield to users.
  • Most banks in the world offer no interest on savings. People can choose to store their savings(in stablecoin) on Yearn Finance and earn a much higher interest.
  • Traditional banks have to build relationships over many years to partner with other institutions whereas other Defi apps can build permissionless on top of Yearn Finance to offer yield options to users.
  • There is no transparency in how banks and funds operate. Most of them take excessive risks because governments insure deposits. Whereas Yearn Finance code is open-source.

🤖 How does it work ?

  • Users deposit their crypto in Yearn finance.
  • Yearn finance pools the funds of all the users and find the platform that provides the best yield.
  • The protocol decides the best platform to earn yield based on various factors like:
    • What is the annual returns?
    • Are there any liquidity minning incentive tokens?
    • What will be the effect of deploying large amount of funds? etc
  • Yield on most platforms updates in real-time. Yearn Finance migrates the funds to another platform in case it finds a better yield on another platform.
  • 90% of the generated yield is given to the users and 10% of the yield goes to Yearn treasury/ YFI, token holders.

Vault

Users can also deposit their crypto assets in vaults. Each vault uses a different strategy to generate yield.

Some strategies are risky and generate high yield, whereas others are safe and generate less yield.

User can learn about strategies employed by several vaults and choose to deposit funds in a vault he feels comfortable with.

The developer who created the vault and the strategy get to keep up to 10% of the generated yield.

⚙️ How to use Yearn Finance

🏛️ Governance model

  • Yearn finance uses snapshot, a decentralized voting system. YFI token holders create and vote on proposals to update the protocol.
  • Proposals that meet quorum requirements (>20% of the tokens staked in the governance contract) and generate majority support (>50% of the vote) are implemented.
  • Yearn finance uses Multisig signers to make changes passed by voting. There are 9 multisig signers.
  • 6/9 multisig signers have to sign for an update to be implemented.
  • Multisig signers do not make decisions, but rather simply implement the updates voted by the community.

🤑 How much money does the project have for future development ?

  • There was no token sale. The tokens were distributed to community members by liquidity minning.
  • Yearn treasury receives 10% of the yield generated until the amount in treasury reaches $500,000 dollars. Once $500,000 is in the treasury, all the additional fees generated are distributed among the stakers.

😨 History of hacks

  • Yearn Finance was hacked after YFI token launch in September. $15 million was stolen by a hacker who exploited a smart contract vulnerability. However, $8 million of this amount was returned to a wallet owned by Andre Cronje.
  • In February 2021, Yearn Finance’s DAI vault was hacked using an Aave flash loan and drained of $11 million worth of assets from various contracts. The protocol then had to open a Maker Vault with YFI tokens from its newly expanded treasury to repay the defrauded users.

😨 Risks and challenges

  • Trading and banking sector is heavily regulated by their respective governments, central banks and securities & exchange commission. Many governments will try to ban/regulate Yearn Finance for operating without a license.
  • Vaults hold tokens worth millions of dollars presenting a lucrative target for hackers.
  • Yearn Finance leverages projects like Aave, Compound, Maker DAO, etc, to generate yield. This exposes the assets deposited on Yearn Finance to other platform risks.

💰 Tokenomics

  • YFI token has fix max supply of 36,666 tokens.
  • There was no coin offering.
  • Andre Cronje(founder) did not keep any tokens with himself.
  • All the tokens were distributed as liquidity minning rewards.

Token Inflation

YFI token does not have any inflation because complete max supply is already in circulation.

Demand pressure

Token’s price increases due to demand pressure.

Demand pressure on YFI token will come from:

  • Governance: Users will acquire YFI tokens to participate in the governance process.
  • Staking: Users will acquire and stake their YFI tokens to earn additional rewards.
  • Speculators: They will buy YFI tokens for future price appreciation.

Market cap

Trillions of dollars are searching for safe yield worldwide. YFI token grants voting rights to govern a system that has the potential solution to this problem.

🧐 Indicators to watch out for

  • Twitter following is growing:
  • Total value locked is growing:

👋 Final remarks

Crypto investors can make use of Yearn Finance to earn yield on their crypto assets. However, it is important that users make themselves aware of the associated risks and strategy employed by the vault to generate yield.

I will be investing in YFI token because:

  • Solves a very real problem.
  • YFI tokens can be staked to earn rewards.
  • All indicators suggest the ecosystem is growing.
  • No inflation and fixed supply.

😊 Do further research

You can continue your research by using following resources:

Further reading