Yearn.Finance is one of the most popular “lending” platforms on DeFi and has seen explosive growth in recent weeks. This article will explain everything you need to know about Yearn.Finance, its token YFI, and whether or not YFI is a worthwhile investment.
What is Yearn.Finance?
Yearn.Finance, in our opinion, is one of the most interesting protocols on DeFi. Basically, it’s an investment platform that automatically allocates invested funds in yVaults between the highest yielding products on DeFi.
Yes, they are yield farming robots.
It’s a fairly basic concept, but it has proven extremely successful with over $4.5 billion in total value locked in the vaults.
yVaults – Explained
yVaults are what put Yearn.Finance on the map. They are basic at their core, but the strategies employed by them are complex. For one, yVaults have a strategy that is voted on by the community and then put into action to see how it works out in reality.
This strategy can include yield farming, lending out tokens, borrowing tokens, and pretty much anything else on DeFi. The best part is it’s all automated, too.
So, how can you invest in a yVault?
Simple, you first go to the vaults page on Yearn.finance, search for a vault, and deposit the coins into the vault. In exchange for the deposit, you receive back yTokens of that token (ie. deposited DAI will receive yDAI).
Now, that deposited cryptocurrency uses a strategy to earn yield. These strategies are often extremely complex and go far beyond the scope of this article, but they do earn yield. Anyway, when you would like to withdraw your deposit, you simply go to the vault and swap the yDAI back to DAI.
You will receive back the DAI you deposited plus earned DAI minus fees. Fees are 0.5% for withdrawing and then a 5% fee (gas fees + 10% for developer and the remaining % goes to the YFI treasury vault) for profit earning strategies.
It’s important to note that a basic underlying principle of Yearn is that users can only swap tokens of the same type. That means you can’t swap yDAI for yUSDC. This was put in place because users want to withdraw the funds they deposited. It also makes it much simpler and safer for the investment strategy.
Keep in mind, this is an extremely basic overview of yVaults. The general concept of yield robots that implement the best yield strategies on DeFi is simple enough to understand, but you should do your own research into the different strategies that different vaults use before investing into a vault.
What is YFI?
YFI is the governance token on Yearn.Finance. And, in our opinion, it is the most fair governance token on all of DeFi.
There was no pre-mine, no team share, and no venture capital share.
This fair launch was achieved by staking the LP tokens from the yCRV pool. It was an especially fair launch of a governance token because staking more LP tokens did not result in more YFI tokens, which is bucking the trend compared to how most governance token offerings operate.
It’s important to note that YFI tokens were not supposed to have any value – they were strictly a governance token. But that did not work out as planned as users quickly began trading the token and the value went from $6 per token to about $30,000 within a few months.
Now, YFI holders voted to distribute a percentage of fees to YFI holders. Those ‘dividends’ can be earned by staking the YFI token. However, you will have to pay gas fees, so it might not be worth it unless you hold a large amount of YFI.
Is YFI a Good Investment?
Well, the price of YFI went from about $6 to ~$65,000 in under a year, so the token has already seen massive growth. This section will cover some of the financial details of the token and whether or not it’s a good investment.
YFI Price: ~$67,000/YFI
YFI Total Supply (Max Supply): 36,635.03 (36,666)
YFI Market Cap: ~$2.5 billion
Total Value Locked (TVL): ~$4.5 billion
24 Hour Trading Volume: ~$850 million
The ~$67,000 price of YFI is actually a decrease from the all-time high of nearly $90,000. However, the price is still slightly undervalued.
Remember, YFI has a TVL of nearly $4.5 billion and a market cap of only $2.5 billion. In a perfect world, the market cap should actually be higher than the TVL.
With that in mind, an 80% increase in price is possible. Especially considering that holding YFI gives you voting rights on the Yeran.Finance project and it earns a small dividend from the fees collected from the vaults.
That covers it for all the basics of Yearn.Finance. It really is one of the most interesting protocols on DeFi with its automated yield farming tool along with being the one with the most active community.
In our opinion, DeFi is on an upward trend for the rest of 2021 and YFI represents a great opportunity to ride this trend. It’s also important to note that Yearn.Finance is not even a year old and has already seen this much improvement – just imagine what it can do in a few years time.