What Is Yearn Finance? Everything You Need to Know - CoinGyan

What Is Yearn Finance? Everything You Need to Know

Have you heard about the Defi gateway called Yearn Finance? Keep reading as we take you through the world of this portal of various Defi products. Currently, Defi has almost $8 billion in crypto assets. There is a high potential that mainstream traders will start leveraging this opportunity. A front door to allow these mainstream traders will certainly be valuable.

Yearn Finance is a portal to various DeFi products. 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.  The protocol’s most well-known pool, yearn finance, shifts capital between top DeFi lending protocols like Compound, Aave  — ultimately geared at providing lenders the best return on liquidity.

The unifying goal of Yearn Finance products is to create a simple, intuitive interface to all Defi. To ensure that active traders have an easy time, Yearn has also built user interfaces for Defi products. People are talking about how Yearn Finance provides access to its products.

Yearn Finance’s Earn Product

Concerning earn, the Yearn Finance portal users can deposit any of the stablecoins like DAI, USDC, USDT, TUSD, wBTC, and sUSD. Once a user deposits a stablecoin, Yearn offers one of the best Defi platforms that the user will earn the highest yield.

The Yearn site is designed to move stablecoins to the best place they will grow as conditions change. As the stablecoins grew, Earn had to become more complex. Due to its size, Earn cannot look at the highest yield pool on Compound or Aave. Compound and Aave are two lending protocols that provide a yield to stablecoin holders.

If all holdings of Earn are dumped in one place, the yield will dramatically change. Therefore, Yearn’s Earn product always has to estimate the optional allocation. Meanwhile, this optional allocation changes constantly because other users are coming and going out of these things directly. Therefore, every time a user deposits or withdrawals from Earn, it rebalances to ensure that the entire pool’s yield is optimized.

The Yearn Finance Vaults

Vaults are the product that gets every user of the Yearn Finance portal excited. With Vaults, users can hold an asset of their choice while also earning yield on the asset. For example, if you love LINK, you can earn LINK simply by letting Yearn put it to work. You deposit the asset somewhere else, and Yearn borrows stablecoins against such an asset. These stablecoins are, in turn, used to search for yield-farming opportunities and are constantly rebalancing as opportunities change.

More importantly, as gains are realized, Yearn converts them back to the underlying token. Therefore, if you deposited DAI and ended up earning in COMP, your gains will be converted back to DAI. With assets like ETH and LINK, there is an additional implication. The implication is that the vaults are constantly purchasing LINK and ETH off the market and locking them in the Yearn LP protocols. It means that the liquid supply will be diminished.

What Happens When You Make A Deposit As A User?

You will get a token back, which represents your share of the liquidity pool. If you haven’t done it before, it is one of the hardest characteristics of yield farming. However, it is one of its basic attributes. Although it is very much confusing, it is compelling.

Most people think that products like Yearn work in the same way as traditional banks. They don’t have the same mode of operations. When you deposit money in your savings account in banks, all you get back is a paper receipt. The money is right there in your account, and you can only withdraw it with a means of identification.

Defi’s core is that it yields tokens, and anyone or any smart contract with these tokens can redeem them. It means that if you deposit DAI on Compound, you will get cDAI in return. On Yearn, you will get yDAI, while on Aave, you get aDAI. The token is the deposit, and you can redeem it and the gains at any time.

These tokens can be traded or deposited elsewhere, and they are the essence of composability. Although Yearn Finance began with stablecoins, it has started building vaults for other assets. It started with LINK and aLINK, and then ETH was next.

What Can You Do With yTokens?

There are lots of places that you can put tokens in Defi. Depositing stablecoins on Yearn is now popular because users easily understand the amount of money we are making. For example, deposits of USDC yield yUSDC. The yUSDC is a certificate of deposit for stablecoin, but it is not itself a stablecoin.

Yearn’s objective was to make it easy for holders of these CDs to transact between its various stablecoin pools. Therefore, Yearn worked with the automated money maker (AMM) Curve to establish a pool made up of yUSDC, yDAI, yTUSD, and yUSDT. This partnership with AMM served two purposes:

  • Any user who with yDAI but would rather have yUSDC can easily swap at Curve.
  • A user with yDAI can additionally amp his/her yield by adding it to this pool, hence earning a portion of the exchange fees there. They will get back yCRV to account for the deposit.

Meanwhile, it doesn’t stop there. The users can deposit yCRV on Yearn and get yUSD, also known as yyCRV.

How Does Yearn Utilize All The Vault Deposits?

If you are a less sophisticated investor, you need to be cautious at this point. On close examination, you will find out that there is little information on how these vaults generate yield. More so, if you are not the person auditing the code yourself, you will blindly trust the community to have enough eyes on it.

Although the Feel the yearn app gives rough descriptions of each vault’s strategy, that doesn’t explain it. However, such a description is a starting place for new users to decide whether the risk is worth it. Looking at the code only tells you part of the story. You will need to understand the market conditions and dynamics.

How Yearn Finance Governance Forum Works

Like most Defi projects, Yearn also has a governance forum on its site. It comprises a very active community with lots of proposals. A significant part of the governing process of Yearn is people posting strategies for different vaults. When users post these strategies, YFI holders will vote on it. If it gets voted through, they get put into action. Part of the profits generated goes back to users.

Yearn arguably has one of the best governance communities and it brings people from different walks of life.

Conclusion

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Decentralized finance is on a part to great value in the long-term, and with its potential, projects like Yearn Finance have a great future. Although it might seem too early for such a projection, time will reveal whether we are right or there is something we ought to consider.

 

Jatin

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