Yearn.Finance turned a lot of heads during the summer of 2020 – also known as DeFi Summer – after its token, YFI, rose from $3 to past $30,000 within months.
Users quickly flocked to Yearn after its launch, locking $1.5 billion into the platform by September 2020. At its peak in November 2021, the total value locked in the network passed $6 billion, according to data.
While the token’s price retreated since then, the decentralized finance (DeFi) platform still offers yields over 20% annually that makes it attractive during times of high inflation for crypto investors.
What is Yearn.Finance?
Yearn.Finance has been one of the pioneers of decentralized finance (DeFi), an umbrella term for automated, blockchain-based financial services that let investors lend, borrow and earn yields on their crypto assets.
It aggregates the offerings of other DeFi protocols such as Aave, Curve and Compound and helps investors find the highest yields on the market so they can optimize their crypto investments for the best returns by “profit switching.” This simply means automatically moving funds around to make the most of the best interest rates.
What you can do with Yearn
First, you have to connect your crypto wallet to the Yearn.Finance protocol.
Users can deposit crypto to their Yearn accounts through various blockchains that are integrated into the protocol: Ethereum, Fantom, Arbitrum.
Then, users can earn a yield by choosing different lending pools and strategies called vaults.
Users deposit the asset into a vault and then Yearn borrows stablecoins against the asset. The stablecoins are then used to seek yield-farming opportunities, constantly rebalancing as opportunities shift.
What is the YFI token?
When the token was launched in July 2020, it grabbed people's attention because Yearn's creator didn't set any tokens aside for himself or the company, as most cryptocurrency issuers tend to do. Instead, all of them were distributed to users who had deposits in certain key liquidity pools that benefited the project.
Initially, the circulating supply of the token was capped at only 30,000 YFI. Later, another 6,666 coins were added. According to the YFI documents, more can be minted if users vote for it.
So to get YFI now, users need to buy it.
Those who hold YFI can propose and vote on certain changes to be made to the platform. To do this, they have to stake their YFI tokens. Once votes have been cast, coins are locked for three days. Voters earn a small fee for participating in the decision-making process.
Read more: What Is a Dapp? Decentralized Apps Explained
Developments at Yearn
In April 2022, Yearn endorsed the new ERC-4626 standard, which streamlines design for yield-bearing tokens on the Ethereum blockchain.
Thanks to the new standard, developers don’t have to write new code to create custom vaults for every single new DeFi application. They can just build upon the new standard. It also creates a shared interface for the tokens held in vaults.
Developers say the standardization allows easier passage between protocols and can unlock innovation in decentralized finance.
The goal of these partnerships was to expand Yearn’s offering to become a powerhouse for yield farming.
Exploits are a constant threat to your holdings in decentralized finance. Chainalysis reported that DeFi theft added up to $2.3 billion in 202. If your fund was stolen, chances are that it would never be recovered.
Read more: 4 Ways to Stay Safe in Crypto
Brady Dale contributed reporting to this article.