yEarn is one of the more interesting platforms in decentralized finance (DeFi). Basically, it’s an aggregator that automatically rebalances the yield you earn from locking coins on different DeFi protocols.
This article will cover everything about how the yEarn ecosystem operates and offer some background information on yEarn.
yEarn has a background that is typical of DeFi protocols – it was created and is currently run by a sole developer, Andre Cronje. However, Cronje is not a newcomer to the cryptocurrency industry, he was a big contributor to the Bitcoin and Ethereum code repository and even reviewed code submissions on the two cryptocurrencies.
In fact, he was fairly well-known in the cryptocurrency industry as a young developer pushing the boundaries with cryptocurrency, so it’s not surprising that he’s at the forefront of DeFi with yEarn.
Anyway, Cronje created yEarn in July 2020 to maximize yield return from a collection of different DeFi protocols. Also, Cronje launched it as iEarn, but quickly changed the name to yEarn. There is also a token associated with yEarn – YFI – that controls governance of the ecosystem.
YFI is not available for sale from yEarn, but can be bought on other exchanges, and is mostly a governance token. The best way to get YFI is by providing liquidity to the yEarn ecosystem. Also, the token is worth about $39,000 at the time of writing. Again, it’s not really meant to be bought or sold.
The next section will explain the components of the yEarn ecosystem and how they operate.
yEarn Ecosystem – yCosystem
As mentioned previously, this section will cover the components of the yEarn ecosystem, which is called the yCosystem. It should not surprise you that most of the value and effort in the ecosystem goes into the yield farming aspect, so we will discuss that in great length.
So, the purpose of yEarn is to get more people into DeFi by making it easy to use. And DeFi is most popular for yield farming, which is why yEarn is focusing so much attention on the yield farming aspect of their ecosystem.
The basics work like this:
- yEarn has set up something called yVaults.
- yVaults are basically containers for tokens. Users provide a token and receive a token wrapped in yEarn as compensation.
- For instance, a user could deposit DAI into the DAI yVault and receive yDAI in exchange.
- yVaults then use that deposit to yield farm across various DeFi protocols decided by the community.
- Earnings are disbursed to yield farmers.
It’s really a simple concept, but the part that makes yEarn special is that the yVault is governed in a way that allows it to yield farm a wide range of DeFi protocols that are chosen by the community itself.
This is really the big thing with yEarn – the community surrounding the decision making of the yield farming itself.
yDAO is another interesting part of yEarn. This is a completely different community than the YFI governance token or yVault yield farming community.
Basically, the yDAO is a vault that contains tokens that are meant to be allocated for projects that can add some value to the entire yEarn ecosystem. It’s actually a good idea, but has not been utilized for anything at the moment.
The most likely use case, in our opinion, is yEarn will pull from the yDAO in the event that they need to hire a developer to help build more aspects of the yEarn ecosystem.
Partnerships are another important aspect of the yEarn ecosystem. In fact, the partnerships are the most important part of the yEarn community. The entire yEarn ecosystem would fall apart without these partnerships.
The two most important partnerships are Curve and Aave. Curve provides some liquidity to yEarn and then gives rewards to yEarn users for liquidity mining. Aave does a similar thing to Curve by providing to yEarn and provides rewards for liquidity mining.
Again, yEarn would not exist if it were not for these partnerships, so it’s a very important aspect of the community. And the community gets to decide the allocation that other DeFi protocols receive, and even what protocols to partner with, to maximize returns from the liquidity mining.
yEarn governance decisions are proposed in something called yEarn Improvement Proposals (YIPs). These are measures meant to improve the community that go up for a vote.
One of the more interesting YIPs was YIP 36, proposed back in August 2020, that called for rewards from liquidity mining to be placed into a multi-sig treasury with a $500,000 cap rather than given to governance stakers.
This multi-sig treasury would be used to cover any future operating costs associated with yEarn, but the $500,000 cap means that it will phase out and return to rewarding governance token holders.
The proposal passed with 45% for and 5% against it and was implemented in August 2020.
That is just one example of a YIP and the actual decisions that the community gets to make. Another interesting YIP was YIP 2 proposed by Andre Cronje upon the founding of yEarn.
Should yEarn burn YFI for fees or reward YFI to stakers?
Unsurprisingly, 88% voted to reward YFI to stakers rather than burn YFI for fees.
There have been a total of 13 YIPs that have been approved and 8 YIPs that have been rejected, which is proof that the community does care about governing the token and yEarn is open to implementing these proposals.
What does it mean for yEarn?
It is a truly decentralized DeFi protocol. And that is a good thing on paper, but time will tell if the community can actually make yEarn work in the long term.
That’s it for the basics of the yEarn ecosystem – it’s not a complicated ecosystem to understand. The basics are that it’s a truly decentralized DeFi protocol that has excellent liquidity mining rewards because it can aggregate the rewards from different decentralized exchanges.
With all of that out of the way, what does the future of yEarn look like?
The future of yEarn looks great. It has a strong community and over 1 billion dollars of Total Locked Value in staking, so it does not look like yEarn is going anywhere. And the governance token ensures that decisions will be made that benefit the users rather than the protocol itself.