What is Yearn.finance (YFI)?

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8 min read

Launched in February 2020, Yearn Finance is an open source decentralized finance (DeFi) lending protocol based on the Ethereum blockchain, which allows users to maximize their own returns (or APY), on crypto assets through lending and trading services.

It functions as a yield aggregation platform to maximize user investment by automatically moving user funds between Defi lending protocols (such as Compound, Curve or Aave).Currently, Yearn is one of the most popular and decentralized Defi projects in the cryptocurrency sector and is considered the most famous project in the world of Yield Farming.

Yearn.finance is therefore a kind of liquidity manager that automatically searches for the best APY (annual percentage yield), always taking into account the level of risk with which the client is willing to work.

Indeed, platform users have the right to cast a vote on the direction of the protocol that most favors their intention.

How does Yearn.Finance work?

Yearn.Finance is designed to automatically and autonomously move users’ funds to the most profitable providers by identifying the protocol that offers the best annual percentage yield (APY).

The protocol’s clients provide liquidity that is automatically diverted to different sectors of decentralized finance to find the best returns.

Depending on the risk, the platform will decide to provide liquidity where it is most profitable, optimizing the search for the best possible return and moving funds when a DeFi project, with the same risk, will have higher APYs.

Yearn.Finance allows users to deposit ERC-20 stablecoin such as DAI, USDC, USDT, into the protocol. In return, users receive an equivalent amount of yToken (e.g., yDAI, yUSDC, yUSDT) that is equivalent to any other ERC-20 token.

Therefore, the Yearn Finance platform automatically converts tokens into a protocol with the maximum throughput to maximize the user’s benefit.

One of the most interesting aspects is that the network only charges a small fee deposited in the platform pool and distributed among YFI token holders as dividends.

Key features of Yearn.Finance

Below I will briefly describe the features of Yearn Finance’s main products:

  • Vaults: Yearn Finance manages several vaults (Vaults) that represent a passive investment strategy and cover different tokens such as DAI, TUSD, USDC and USDT and other cryptocurrency combinations.  

Vault strategies are aimed at maximizing the return on an asset in the vault but are not based on simply lending coins, as is the case in the standard Yearn protocol. Most vault strategies are more active in maximizing returns and include: providing collateral, borrowing other assets (such as stablecoins), providing liquidity, farming other tokens and selling for profit.

The profits generated by the vaults are used to buy more underlying assets.

  • Earn: During 2020, Yearn Finance expanded its functions and now allows users to access other services. One of them is Earn. This is a product that fully optimizes the interest maturity process for end users to ensure they get the highest interest rates at all times among the platforms listed above.
  • Zap: is a tool that allows users to enter and exit different liquidity pools available in Curve Finance. Currently, users can use five stable currencies (BUSD, DAI, USDC, USDT, TUSD) and “Zap” into one of two groups (y.curve.fi or busd.curve.f) in Curve. 
  • Cover: is insurance that allows users to obtain coverage against financial loss for various smart contracts and/or protocols on the Ethereum blockchain. The coverage is underwritten by Nexus Mutual.

How do YFI tokens work?

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YFI is Yearn.finance’s native cryptocurrency that differs from most cryptocurrencies in that it is a governance token with no intrinsic value and has an independent protocol. 

Also, unlike other cryptocurrencies, it cannot be mined.

YFI is distributed to those users who provide liquidity to any of the platforms that use yTokens and its purpose is to give the entire governance of the yEarn system to the community, as it allows holders to vote on decisions that affect Yearn.

This means that platform users have the right to vote on the protocol management that best suits their needs.

  • To participate in the protocol, users first have to invest their YFI tokens in a government contract.
  • Once their YFIs are invested, they receive voting rights and a percentage of the protocol’s profits for each of Yearn’s products. 
  • To unlock and receive the rewards, users will have to vote and, after three days, they will receive the earned rewards.

Regarding YFI supply, there are only 30,000 YFI tokens and, to date, 29,969 YFIs have already been minted and distributed (only 31 tokens remain to be issued).

This is probably one of the reasons for its incredible rise in value.

In fact, at the end of August 2020, the YFI token surpassed the all time high of BTC and nearly doubled that milestone reaching $39,238. At the time of writing, the price of YFI is $32,762 while that of bitcoin is $32,784.

YFI Wallet

You can store your YFI tokens in any of the most popular wallets such as Trezor, Ledger, MyEtherWallet, Coinomi, Atomic Wallet.

Where to buy YFI?

If you want to invest YFI in one of the platforms that belong to the DeFi space, but have not yet obtained their tokens, you can buy YFI on one of the exchanges that support this type of cryptocurrency. Among them we find:

  • Binance
  • Coinbase
  • Kraken
  • Bitpanda

Yearn Finance, as you have seen, is one of the trending projects in the decentralized finance and Yield Farming landscape which, given its mergers and partnerships with other protocols, heralds a very promising future.

If you have found what I have told you interesting and want to get more information about decentralized finance and the most successful platforms of the DeFi ecosystem, don’t miss the articles dedicated to these interesting topics.