RESEARCH REPORT ABOUT YEARN.FINANCE PROTOCOL

15 min readSep 2, 2020

Author: Gamals Ahmed, CoinEx Business Ambassador

ABSTRACT

The Decentralized Finance (DeFi) area is undoubtedly an area where all eyes are on. The locked value in the lending protocol continues to increase and definitely shows no signs of slowing. DeFi has exciting events every day. In this report will provide with an analysis of the growth story of a distinctive symbol that has no monetary value yet made a buzz in DeFi. It’s YFI, one of their recently launched DeFi tokens, YFI has earned in 35,000% return to those who joined the party early.

On August 18, 2020, the price of YFI, one of the most trending DeFi projects recently, continued to rise and topped $12,821 for a short time, overtaking the price of BTC.

About 1 month ago on July 17, 2020, the founder of yearn.finance (YFI) repeatedly emphasized that YFI is a governance token with 0 financial value in an article introducing YFI. When YFI first entered the market on Balancer, the price was only $3. In less than a week, its highest price exceeded $4,500. Now the price continues to rise, with the unit price even surpassing Bitcoin.

1.INTRODUCTION

The DeFi world has experienced tremendous growth over the past few months. The number of lenders offering many services, such as the DeFi project, is beginning to attract more and more users. Yearn.finance also serves exactly this audience. Because yearn.finance users can use DeFi network much more effectively by using this product. The reason for this is that yearn.finance automatically tells you how much income you will earn from which project, how much transaction fees will be charged for which project. In this way, investors can do this most efficiently when they want to take advantage of Aave lending or Maker Dai Savings Rate services.

The Yearn.finance ecosystem includes the following products:

yearn.finance — Profit lender (live) to optimize lending yields
ytrade.finance — Leveraged stablecoin transactions (testnet)
yliquidate.finance — 0 automatic capital clearance for Aave (testnet)
yswap.exchange — One-sided automated market maker (live)
iborrow.finance — credit delegation vaults for smart contract loan (testnet)

Annual finance ecosystem is controlled by YFI token

According to Santiment, YFI is currently the only cryptocurrency that offers users the highest efficiency in the DeFi market. An analyst at the firm says:

“You get every spouse you deposit with this cryptocurrency. And it goes around. It finds and accumulates the best returns in the region. Thus, it ensures that you get the best efficiency. This is like an automatic yield picker. ”

1.1 OVERVIEW ABOUT YFI PROTOCOL

Yearn Finance, become increasingly well-known following a massive price rally. Specifically, Yearn Finance’s YFI token has surged over 300% in Aug. As such, many are beginning to ask the question “what is yearn.finance”.

Andre Cronje single-handedly developed yearn.finance (yEarn), a yield-aggregating platform on Ethereum. yEarn has grown into an ecosystem of protocols that aims to maximize annual percentage yields (APY) for its users. It plays a part in the yield farming mania that kicked off with Compound’s COMP token distribution. yEarn utilizes DeFi protocols such as Curve, Compound, Aave, and dYdX to optimize token lending. In a nutshell, it is a sophisticated protocol that diverts liquidity to different sectors of the DeFi universe to find the best returns.

yEarn is probably best known for its yPool on Curve. When a user deposits tokens they are converted to “yield optimized tokens” (yTokens) such as yUSDC, yUSDT, and yDAI. This allows the user to earn not only the usual lending fees but also the trading fees off of Curve. yEarn routes liquidity to different sectors across the DeFi space and yPools have earned some of the best lending rates in 2020 .

yEarn has earned praise for being one of the most decentralized projects in crypto. It’s also been called the “Bitcoin of DeFi” for the high APY seen by its early adopters.

It is the first protocol on Ethereum that claims to give token holders all the power to govern the network.

Cryptocurrency researcher Hasu explains yearn.finance as a platform that allows users to execute various investment strategies. He says:

“If you’re not familiar with Yearn, you can think of it as a smart bank account that automatically allocates your assets to different low-risk investment strategies that execute on the Ethereum blockchain.”

The price of YFI, the governance token of the protocol, increased naturally as the total value locked in yearn.finance surged. According to data from Defipulse, more than $670 million worth of capital is locked in yearn.finance.

yEarn also created Curve’s Y pool, a lending pool consisting of top stablecoins like USDC, DAI, TUSD and USDT, and is used for the BUSD Curve pool thanks to yEarn’s interest-earning yToken standard.

yEarn recently released a native governance token, YFI, which is earned through liquidity money on a number of different pools. YFI is earned by staking proof of liquidity and is one of the only DeFi tokens, which was launched with no premine and no initial DEX offering.

yEarn Finance joins Aave, Maker, Curve, and Compound as DeFi protocols with $1 billion of assets locked in their smart contracts.

Key Takeaways

yEarn was technically born in January 2020 as iEarn, until rebranding and launching new features last month.
The platform automates much of the complexity behind yield farming and is controlled by holders of its native governance token, YFI.
Andre Cronje has developed a cult-like following due to his software prowess, speed, and creativity in the realm of DeFi.

1.1.1 ANDRE CRONJE (THE FOUNDER)

Yearn Finance founder Andre Cronje could serve as an inspiration to many looking to make their mark in crypto. Specifically, he chose to opt out of a law degree to instead focus on computer science. He then finished a computer science program in just six months and went to work in FinTech. Distributed ledger technology captured his imagination and then he found cryptocurrencies. Later, he became fascinated with DeFi and the potential yields that could be gained with stablecoins.

Cronje became an influencer in the DeFi space and earned respect for his code reviews before he founded yEarn. It was his obsession with dissecting the code of other platforms that helped him finalize his own. During his exploration phase, he became convinced that DeFi was too complicated for the average user. He then decided to focus on two aspects of his project to help rectify this problem — user experience and safety.

1.1.2 YEARN.FINANCE AT THE BEGINNING

The first iteration of yEarn started as a result of Cronje handling money for friends and family. He wanted to find a way to put stablecoins to work for a profit. there was Aave, Fulcrum, Compound, and dYdX. As such, Cronje would manually check these protocols to see which was offering the best annual percentage return (APR).

Manually moving tokens around and paying gas fees all the time soon wearied him. So he coded some smart contracts that would do the figuring for him. He then wrote the iterations for the yTokens. The yTokens could read the normalized APR output and move to the place offering the best returns.

He used this system for himself first but then opened it up to others. After all, the more people that used the protocol the better. That’s because each time a user interacted, the smart contracts checked to see if a rebalance was necessary. The higher the frequency of interactions the more shifts between protocols occurred. And the more shifts the higher the returns.

So, yEarn got better returns in aggregate than any of its downstream sources standalone. Cronje’s concept was simple — just send more capital to the place with the highest returns. Gas fees had to be taken into account, however, because they accrued whenever the tokens moved.

1.1.3 WHAT SERVICE DOES YFI PROVIDE?

The service provided by yearn.finance is to optimize revenue. By accessing various DeFi protocols and adjusting in time among different protocols through algorithms, yearn.finance can choose the protocol with the highest revenue at the moment. From the user’s point of view, yearn.finance might be the easiest way to earn interest and maximize their returns while also saving money on transaction fees and time on doing research.

1.1.4 YEARN FINANCE (YFI): “FINANCIAL VALUE 0”

On July 17, Andre Cronje announced the launch of Yearn Finance (YFI), the symbol of an existing yield collection platform. Cronje had made the following statements:

“We released YFI, which is completely worthless token with more to give up on this protocol. We repeat, it has 0 financial value. No mining, no sales, no purchases, no will not be in Uniswap, no auctions. We don’t have any. ”

1.1.5 YFI INCREASED 35,000% IN ONE WEEK

Token was not only listed on Uniswap, but it also provided up to 35,000% of return per week, according to the stock market. In other words, even locked liquidity in the protocol increased by approximately 4,600% in less than a week.

This also applies to strong ongoing developments in DeFi. According to DeFi Pulse, the total value locked in lending protocols exceeded $ 4 billion. While Aav dictated the Compound as the second largest protocol, Maker took the top spot.

1.1.6 ASSET MANAGEMENT BY YEARN FINANCE

The yEarn Finance protocol has been on a growth rampage ever since its creator and developer, Andre Cronje, announced his return to DeFi.

The commencement of Curve’s liquidity mining program the last few days was a turning point for yEarn, whose yCRV liquidity pool accounts for 65% of Curve’s liquidity.

YFI, yEarn’s native governance token, is one of the very few DeFi tokens whose intrinsic value is directly correlated to total value locked (TVL).

yEarn’s TVL explosion has caused a steep jump in perceived revenue from fees to YFI holders.

1.1.7 HOW YTOKENS WORK

Think of yTokens as a pool. whenever a user deposits or withdraws funds from this pool, the smart contract checks the APR. It operates like an oracle but not exactly. Cronje explains it like this, “Oracles check off-chain, while this does not. Everything is on-chain.”

While he does not refer to yTokens as oracles in the traditional sense, he nonetheless refers to them as “APR Oracles.” They normalize on-chain information like a robot seeking the highest yield. And it’s all automated with smart contracts to move funds where they need to be.

Let’s say there is a DAI pool. When a user deposits more DAI, the smart contract asks the APR Oracle where the highest APR is. If the APR oracle says its Aave, it moves the DAI tokens to Aave. So the user can sit back and earn interest on Aave.

Now, let’s say another depositor comes in with DAI. The smart contract checks the APR oracle and this time, it finds that the best rate is on Compound. So it withdraws the DAI from Aave, returns the aTokens to Aave, and deposits the DAI into Compound. Now the user has Compound cTokens.

2.YEARN.FINANCE TEAM

Andre Cronje is one of DeFi’s most creative and respected developers. He single-handedly created the protocol in January 2020 and is responsible for create and upgrade yEarn.Finance.

With over 15 years of experience creating software, Cronje has worked with traditional technology companies and crypto projects alike.

In particular, Cronje is known for his speed of deploying code and iterating.

3.THE YEARN.FINANCE ECOSYSTEM

Yearn.finance, or yEarn, as it’s also called, is an entire ecosystem composed of not only yearn.finance, but which also includes:

yearn.finance — Profit switching lender to optimize lending yields (live)
ytrade.finance — Leveraged stable coin trades (testnet)
yliquidate.finance — 0 capital automated liquidations for Aave (testnet)
yswap.exchange — Single sided automated market maker (live)
iborrow.finance — Credit delegation vaults for smart contract to smart contract lending (testnet)

The yearn.finance ecosystem is controlled by the $YFI token

yEarn supports DAI, USDC, USDT, TUSD, and sUSD stablecoins. Those new to DeFi might perceive yEarn to be a complex protocol. And due to the lack of documentation on the

project, this might serve to add an element of mystery. But the concept is quite simple. yEarn moves the supported stablecoins between Compound, Aave, dYdX, and Curve depending on which asset pool is offering the highest yield.

The purpose of using Curve is to increase rewards in yEarn tokens. So when a user deposits DAI they receive yDAI in return. They can then supply yDAI to Curve to earn trading fees in addition to yield rewards. The protocol takes a small cut that is only available to YFI token holders.

3.1 YEARN.FINANCE ECOSYSTEM

The purpose of yearn.finance is simple. Yield aggregator for lending platforms that rebalances for highest yield during contract interaction.

yearn.finance supports: ($DAI, $USDC, $USDT, $TUSD, $sUSD)

yearn.finance aggregates:

Compound
Fulcrum (disabled)
dYdX
Aave
DDEX (disabled)

3.2 CURVE.FI

The purpose of curve.fi is to further increase rewards on yearn.finance tokens.

After you deposit $DAI into yearn.finance you receive $yDAI. You can provide $yDAI as liquidity to curve.fi.

Now you can earn trade fees (0.04% per trade) on top of yield rewards

curve.fi supports:

$yDAI
$yUSDC
$yUSDT
$yTUSD

3.3 YTRADE.FINANCE

The purpose of ytrade.finance is to create leveraged stable coin trades. LPs earn additional interest on their yield bearing tokens, traders can create leveraged positions.

ytrade.finance supports:

$DAI
$USDC
$USDT
$TUSD

3.3.1 EARNING REWARDS AS AN LP

LPs can deposit $yCRV, the output token when you provide liquidity to curve.fi/y

LPs retain all the rewards from $yCRV, trading fees, and interest from the underlying yearn.finance.

Over and above that, they receive interest from traders creating leveraged positions. This interest is calculated based on Aave utilization ratio. Returns as high as 30% when fully utilized. When traders open a position, it includes an initiation fee, which is immediately rewarded to LPS.

So LPs earn;

Yield from yearn.finance
Fees from curve.fi/y
Initiation fees from traders opening positions
Borrow fees based on utilization for opened positions, up to 30%

3.3.2 OPENING POSITIONS AS A TRADER

Traders can trade $DAI, $USDC, $USDT, or $TUSD for one of the same. This trade is facilitated on curve.fi/y. Traders can choose any leverage they are comfortable with. Traders can close their position at any time.

4.THE YFI GOVERNANCE TOKEN

YFI is an ERC-20 token that governs the yearn.finance ecosystem. The protocol distributes YFI to liquidity providers (LPs) who supply certain yTokens. The goal was to have YFI used for voting and not as a means of exchange.

Cronje has stressed multiple times that the YFI token is valueless and that it wouldn’t be traded on any exchanges. However, the opposite happened, as the price of the yfi token suddenly exceeded $ 1600. Currently, users can trade YFI on both Binance and Uniswap. When Binance debuted it, YFI quickly rocketed 50% in value. And the price jumped 4,000% when Uniswap listed it. The market has fervently disagreed with its zero valuation and YFI’s success has since spawned copycats.

YFI hodlers can vote on issues regarding all the protocols in the yearn.finance ecosystem. There was no ICO on launch. And if you’re interested, you can earn YFI by providing liquidity to yEarn’s ecosystem. Or you can purchase YFI on Binance or Uniswap. The max supply of YFI tokens is 30,000.

YFI governance can be tricky to figure out as the details are spread out over a series of posts on Medium. But essentially, the system can be summarized as 1 YFI token equals one vote.

4.1 YEARN GOVERNANCE FORUM

yEarn has launched a governance forum, a place to discuss changes and amendments to the yEarn protocol.

yEarn Governance Flow

The governance forum is a place to discuss all proposals, amendments, and desired upgrades to the yEarn protocol. This includes but is not limited to:

Governance Frameworks
Proposal Discussions
Fee Allocations
Value-Added Incentives
Pool Additions & Amendments
Protocol Economics

Proposals can be made by anyone, however, it should be noted that just because a proposal is submitted to the forum does not mean it will (or should) go to an onchain vote. Only those which are put to (and pass) an onchain vote will be ratified.

4.2 HOW TO VOTE?

All onchain proposals will live on ygov.finance/vote. To participate in governance, you must have Meta Yield Governance shares.

Meta Yield Governance shares are earned by staking the Balancer Pool Tokens (BPT) representing this 98/2 yCurve/YFI pool. Your stake in the pool will issue you yGov tokens which gives you the ability to vote on yEarn proposals.

4.3 HOW TO EARN YFI

One of the most popular ways to earn YFI is through the yCurve pool. LPs who supply yTokens to the yPool in Curve Finance, receive yCRV tokens in exchange. yCRV can then be deposited into the yGov pool back at yEarn. There is a guide on Curve if you’re interested.

Another way is to deposit a mix of DAI and YFI into the Balancer protocol where LPs receive BAL tokens in exchange. By depositing BAL into the yGov pool it can be exchanged for YFI.

Users can also deposit a mix of YFI and yCRV into Balancer in exchange for the Balancer Pool Token (BPT). They can then deposit BPT into yGov for YFI tokens. This process is similar to staking crypto in exchange for block rewards. Except they are staking Curve and Balancer tokens in yEarn in exchange for YFI and governance rights.

5.THE FUTURE OF YEARN.FINANCE

When Cronje said DeFi has become too complicated for the average person, he was right. Anyone who can simplify the process and provide a better user experience stands a better chance at gaining mass adoption. And while any Yield Farming strategy involves a high level of risk, yEarn has provided some nice returns this year with relatively limited risk. Albeit, whenever a user makes a play on yGov with BPT tokens, layers of derivatives are activated beneath the underlying asset. That means that anything can go wrong with just one link in that chain which makes it hard to call it a low-risk strategy.

While Cronje is the only developer, a community has grown up around yEarn. And their commitment to community governance is stellar. YFI is a strongly designed and highly desired token. Changes to the protocol are done via on-chain proposals and voting.

yinsure.finance a new insurance primitive

Cronje wrote in one of his posts on Medium he said over the next few weeks they would systematically be releasing yinsure.finance, a prototype for a new kind of tokenized insurance.

There are three core components to describe:

1. Insurer Vaults

2. Insured Vaults

3. Claim Governance

Insurer Vaults are LPs providing insurance. The first vault will be yiUSDC. LPs provide USDC and earn initiation and weekly fees paid by insurees. Should a claim be approved USDC is deducted from the vault and paid out to the claimant.

Insured Vaults hold the tokenized asset being insured. Taking USDT as an example, if you wish to insure USDT, you provide USDT to the vault, generating yiUSDT. On deposit you will be subject to a 0.1% initiation fee. Each week, you will be deducted a 0.01% fee. At any time you can withdraw USDT or deposit more USDT. Your insured sum is the amount of USDT deposited.

Claim Governance allows the insured to create a claim by staking their yiUSDT. Insurer LPs vote with their yiUSDC. This follows the standard voting rules, 3 day voting period, 33% approval, 25% veto, all of which scale based on the claimed sum. Should a claim be approved the yiUSDT is distributed to the yiUSDC LPs and USDC is paid out to the insured.

The design of this system allows any asset that has a financial primitive to be insured, be it a base asset such as DAI, or a composite asset such as aDAI or yDAI.

LPs are rewarded with initiation fees and weekly fees, however, they are responsible for claim management, the base system does not have a minimum quorum and as such LPs should manage claims proactively.

Should LPs largely decline valid claims, insurees will simply move their funds out, making it unprofitable for LPs and thus aligning incentives.

The design further allows “passive” payments, similar to debit orders, where the insured does not have to make active monthly payments.

The first Insurer Vault will be USDC, and the first Insured Vault will be yUSD (wrapped yCRV) from yVault (yearn.finance/vaults)

6. YFI PROTOCOL COMMUNITY

Website https://yearn.finance/

Telegram https://t.me/iearnfinance

docs https://docs.yearn.finance/

7.CONCLUSION

After the massive revolution in August, Yearn Finance is becoming increasingly popular, Where yfi became a public talk. YEarn uses DeFi protocols like Curve, Compound, Aave, and dYdX to enhance premium lending. In short, an advanced protocol transfers liquidity to different sectors of the DeFi world to find the best returns.

YEarn is probably best known for yPool on Curve. When a user deposits tokens, they are converted to “yield enhanced tokens” (yTokens) such as yUSDC, yUSDT, and yDAI. This allows the user to earn not only the usual borrowing fees but also the off-Curve trading fees. YEarn has funneled liquidity into various sectors across the DeFi space and yPools earned some of the best lending rates in 2020.

YEarn has won praise for being one of the most decentralized projects in cryptography. It has also been called “Bitcoin of DeFi” for the high APY that its early users saw.

Perhaps the creativity and experience of developer Andre Cronje in the world of DeFi is one of the main reasons that made yEarn carry so much popularity.