What Is Yearn? A Guide to the Gateway of Decentralized Finance

Yearn.Finance, a pioneer of decentralized finance, aims to be the “Amazon of DeFi” with automated investments and more than 20% yields. Here’s how it works.
Updated Nov 17, 2022 at 5:46 p.m. UTC
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Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.


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.

Founder Andre Cronje, a South African developer who worked on a myriad of cryptocurrency projects and later quit in March 2022, launched Yearn in early 2020 offering an easy-to-use gateway for those who wanted to automate their cryptocurrency investments to earn the highest yields.

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.

Built on top of the Ethereum blockchain, Yearn.Finance is a smart contract protocol that works like an Amazon marketplace for interest-bearing crypto products.

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.

The yield can come from gas fees, trading fees, staking rewards and lending interests.

What you can do with Yearn

First, you have to connect your crypto wallet to the Yearn.Finance protocol.

There are a dozen available wallet options, from hot wallets to cold storage, that Yearn can connect to including MetaMask, Coinbase Wallet, Ledger and Trezor.

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.

Vaults let users hold an asset they like while also earning yield denominated in that asset, so they can grow their stack. For instance, people who hold SUSHI, the token of decentralized exchange SushiSwap, can earn SUSHI by letting Yearn put their holdings into work.

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?

YFI is the native governance token of the Yearn platform.

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.

Developments at Yearn

Standardization

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.

Mergers

After launch, Yearn partnered or merged with a string of other DeFi projects such yield seeker Pickle Finance, hedging protocol Hegic, money market Cream and institutional DeFi portal Akropolis.

The goal of these partnerships was to expand Yearn’s offering to become a powerhouse for yield farming.

Hack

In February 2021, Yearn.Finance’s DAI lending pool suffered an exploit, which resulted in a loss of $11 million. The attacker got away with $2.8 million.

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.

Brady Dale contributed reporting to this article.

This article was originally published on Apr 22, 2022 at 6:54 p.m. UTC

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Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.

CoinDesk - Unknown

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.


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