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Introduction To Yearn Finance

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The first wave of DeFi on Ethereum has brought a lot of innovation but only a few of the protocols that launched at the time survived. One of those protocols is Yearn Finance. It is one of the oldest DeFi projects on Ethereum that allows users to earn passive income through a variety of tools and strategies.

Here is a closer look at how Yearn manages to provide these services to their users.

What is Yearn Finance? #

Yearn Finance is a group of protocols that allow users to earn passive income through yield farming, lending, borrowing and staking. Strategies on Yearn are completely autonomous and are changed from time to time by the development team. Their aim is to generate passive income for Yearn depositors by utilizing the yield farming opportunities on different protocols such as Curve or AAVE.

YFI is the native token of Yearn Finance which is also the governance token of the protocol. The community can propose changes to the strategies or services that Yearn provides and a community vote will decide if they get implemented or not.

Yearn Finance Overview #

With a TVL of over $4B Yearn is one of the largest DeFi protocols available only on Ethereum and Fantom.

The home page was recently updated to V3 which offers the following financial services:

Vaults offer lucrative yearly returns thanks to the strategies that are currently active. Depositors only need to make a one-time deposit and Yearn protocols will try to maximize the returns through shifting capital, auto-compounding and rebalancing.

All micromanagement is done by Yearn’s strategies while the depositor keeps custody over the tokens and can withdraw them at any time.

Labs offers strategies that have a higher risk to reward ratio. Most of the time returns from Labs strategies will be significantly higher than those from Vaults but the risk will also be greater. It is very important that you understand the downsides before using Labs because most strategies will require token lockups and participating in liquidity pools, both of which bear the risk of impermanent loss.

Iron Bank is a lending protocol on Yearn where users can earn income by providing liquidity or take out loans based on their collateral. Borrow and supply rates can vary depending on the market conditions and the supply/demand ratio of a specific asset.

Wallet is a feature that allows direct deposits to vaults and strategies using any tradable ERC-20 token. The interface is very straightforward and very similar to ordinary swaps on dexes.

YFI Tokenomics #

As already mentioned, YFI is the native token of the Yearn Finance protocol. YFI holders can vote on governance proposals but also stake YFI to earn passive rewards which come from revenue distribution. In December 2021 Yearn announced a change in tokenomics and a buyback program that would reward stakers and token holders.

All strategies on Yearn have a performance fee that is accumulated by the protocol and then distributed to YFI stakers. The complete distribution mechanism can be seen in the chart below.

YFI has a maximum supply of 36,666 tokens and it will remain unchanged unless a community vote implements new token mints or burns.

Conclusion #

There is no doubt that Yearn Finance remains one of the leading DeFi protocols on Ethereum simply due to the variety of services and tools that it has to offer. Anyone looking for passive income can easily find strategies that are the best fit for their financial goals.

Ease of use and one-click solutions have become a trademark on Yearn and we can only expect more of the same in the years to come.

References:

Yearn Finance Launches YFI Buyback Program: Markets Wrap. (2021, December 17). Blockworks. Retrieved February 8, 2022, from Yearn Finance Launches YFI Buyback Program: Markets Wrap

YIP-65: Evolving YFI Tokenomics. (2021, December 23). Yearn.Finance. Retrieved February 8, 2022, from YIP-65: Evolving YFI Tokenomics

Updated on February 10, 2022
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