Yearn Finance
Universe Finance is an active liquidity management platform of Uniswap V3 based on risk ranking and quantitative strategies.
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Universe Finance is an active liquidity management platform of Uniswap V3 based on risk ranking and quantitative strategies.
Last updated
Launched in 2020, Yearn Finance (or yearn.finance) is a set of protocols working in conjunction on the Ethereum blockchain that allow users to maximize their passive earnings on crypto assets that they own, through the use of lending and trading services.
A major player in the emerging decentralized finance (DeFi) sector, Yearn Finance provides its services completely autonomously, removing the need for a financial intermediary like a bank or custodian. In order to accomplish this, Yearn Finance has built a system of generous incentives to reward those participating in the protocol – paid in the YFI cryptocurrency.
Interested in Yearn.Finance (YFI), but not sure what it’s all about or where to even begin? No worries. This guide is designed to teach you everything you need to know about the project and get you ready to jump into the most user-friendly trading experience available on the market.
Yearn Finance is a holistic collection of Decentralized Finance (DeFi) products that provide services such as lending aggregation, yield generation, and insurance on the Ethereum blockchain.
The protocol is maintained by various independent developers and is governed by YFI holders, allowing all of Yearn’s features to be provided in a decentralized manner.
Yearn Finance consists of four different core products:
Vaults – staking pools that generate returns based on opportunities present in the market. Vaults benefit users by crowdsourcing gas costs, automating the yield generation and rebalancing process, and automatically shifting capital as needed.
Earn – yearn’s first product. Earn is a lending aggregator where funds are shifted between dYdX, AAVE, and Compound automatically as interest rates change between these protocols, ensuring users take advantage of the best rates at all times.
Zap – this product enables users to swap in and out of liquidity pools on Curve.Finance using five stablecoins (BUSD, DAI, USDC, USDT, TUSD).
Cover – insurance that allows users to obtain coverage in the event of financial losses for various smart contracts and protocols across the Ethereum network.
The amount of YFI a user earns is determined by the amount of cryptocurrency locked in Yearn Finance contracts running on the Balancer and Curve DeFi trading platforms, using the yearn.finance platform.
Yearn Finance generates the majority of its activity thanks to a practice commonly known as “yield farming”, where users lock up their cryptocurrency in a Decentralized Finance (DeFi) protocol in order to generate interest – typically in the form of more cryptocurrency. The more crypto a user locks in one of the supported platforms at a time, the more tokens they are awarded.
In its first month, the yearn.finance platform saw roughly $800 million in assets locked, making it one of the fastest-growing DeFi projects to date.
Yearn Finance was created and launched by Andre Cronje. Incredibly rare in the cryptocurrency space, Cronje raised no private or public funding for the yearn.finance protocol – and reserved no tokens for himself.
Cronje is certainly a veteran of the cryptocurrency space and has become synonymous with DeFi.
Since going live in July of 2020, Yearn has held just over $1 billion in assets at a single time.
Yearn Finance has the unique vision of simplifying DeFi investment and activities such as yield farming, in an effort to make it more accessible for the uninitiated.
Yearn makes use of various custom-built tools to act as an aggregator for DeFi protocols such as Curve, Compound, and Aave. The platform has built-in mechanics to shop interest rates, bringing those who stake cryptocurrency the highest possible yield.
Yearn Finance profits by charging withdrawal fees, currently a reasonable 0.5%. There is also a 5% gas subsidization fee that varies depending on Ethereum network congestion. Thanks to its decentralized governance model, these rates can be changed by consensus of users at any time.
YFI is the ERC-20 crypto token that governs and incentivizes the Yearn Finance platform.
Holders of YFI tokens can vote on the rules of using yearn.finance by voting on proposals. In order to pass and be implemented into yearn.finance’s codebase, a proposal needs to have more than 50% of votes. Anyone may make a proposal whether they hold YFI or not, but only YFI holders may actually vote to determine if the proposal should pass.
YFI had an initial fixed supply of 30,000 tokens, but this supply is increased if YFI holders deem that to be the best course of action. Currently, the maximum supply is 36,666 YFI.
YFI holders are able to receive revenue collected by the protocol in the form of fees. Yearn charges a fee of 5% for its Vault service and 0.5% on the Earn feature, offering generous incentives for those holding YFI
Yearn Finance users earn YFI when they provide liquidity and participate in the ecosystem, and their YFI token holdings dictate their voting power on community proposals affecting the future of the platform.
The Yearn Finance protocol’s native token YFI began with a maximum supply of 30,000 tokens. Yearn held no pre-mine before launching, and its developers did not receive any starting funds whatsoever – the circulating supply at launch was 0 YFI.
Since launch, the majority of the supply has entered circulation (and the max supply has inflated). The success of Yearn Finance is reflected in its high token price and active user base.
Yearn Finance’s most complex product is also one of its most powerful and popular: Vaults. Yearn Finance Vaults allow users to follow custom-built, live investment strategies by using the protocol’s autonomous code. This essentially makes Vaults cutting-edge live-managed mutual funds, offering incentives to those participating.
Vaults are on the more complicated end of the Yearn Finance spectrum, because the Vault strategies are expressed in the Solidity programming language. This means users interested in creating their own Vaults will need to be familiar with coding in order to understand how Vaults actually operate.
Though operating a Vault is complex, investing in a Vault is as straightforward as can be. To invest in a chosen Vault, the Yearn Finance user interface allows a user to deposit stablecoins such as DAI and USDC directly into any strategy/Vault they choose, with each one advertising its historical return on investment (ROI).
Yearn Finance users can sometimes face a moderate risk of losing money due to market conditions changing rapidly and opportunistic entities attempting to profit from less-experienced participants.
In an effort to maintain transparency about the platform’s potential risks, creator Andre Cronje made it clear in the community that even after independent code audits, Yearn Finance could not be guaranteed to be 100% safe at all times. This is simply a fact of decentralized finance: DeFi involves inherent risk.
Yearn Finance offers various products users can take advantage of to fulfill all of their DeFi needs.
The Yearn Finance platform uses its native YFI token as both a rewards mechanism for liquidity providers and YFI holders, as well as a governance token used for voting on community-submitted proposals that may affect the future of the protocol.
YFI is an ERC-20 token, so any Ethereum-supporting wallet can be used to store YFI. The type you choose will likely depend on the amount of YFI tokens you have and what you intend to do with them.
