What is Yearn Finance?
Yearn.Finance is an open source decentralized finance (DeFi) lending protocol based on the Ethereum blockchain. It acts as a profit aggregator to maximize user investments by automatically moving user funds between DeFi lending protocols, such as Compound, Dydx, Curve, or Aave.
Currently, Yearn is one of the most popular and decentralized DeFi projects in the crypto space. While YFI is the native cryptocurrency of Yearn.finance, Unlike Bitcoin, YFI is a governance token that boasts an autonomous protocol.
That means users of the platform have the right to vote on the direction of the protocol that is most beneficial to their intentions. As of now, YFI is one of the largest Ethereum-based tokens that prioritizes automated yield farming strategies.
How Do Yearn Finance Tokens work?
YFI is the native token of the Yearn.Finance platform. It is purely and simply a governance token, allowing holders to vote on decisions affecting Yearn.
Governance Token (YFI)
YFI is an ERC20 token used for all governance activities on the platform, like voting on protocol upgrade or change proposals. So far, only 30,000 YFI coins have been fully minted and distributed so far.
To participate in the protocol, users first need to place their YFI in a governance contract. They then receive voting rights and a percentage of the protocol profits for each yearn product at regular intervals. To claim the rewards, users need to vote, and once they have voted, their YFI tokens will be locked for three days, i.e., they will not be able to cancel the asset staking.
YFI Locked Total Value (TVL)
Firstly, TVL represents the dollar value of all tokens locked in a smart contract in a decentralized lending project. When analyzing YFI’s TVL, most of the limited supply (29,968 coins) was put into circulation. The token’s success was thus marked by an all-time high price of $43,873 in mid-September 2020, when TVL in the parent protocol rose to over $676 million. As buying sentiment increased, the YFI/USD rate rallied, taking YFI above a 13,0000% gain in value. result? YFI is currently the first cryptocurrency worth more than Bitcoin (BTC) per unit.
What is Yearn Finance product used for?
Yearn.Finance has several features or services that users can exploit right now. The yEarn component of the protocol allows users to deposit any stablecoin: DAI, USDC, USDT, TUSD, sUSD, and more. And now, Yearn is looking for the most productive DeFi platforms.
In the early days of yield farming, this is what Cronje built yEarn to do: move stablecoins to the best place to grow them as conditions change.
Over time, upgrades and improvements to protocol security make monetization more and more complex. So, given the size of the protocol’s user base, yEarn tries to estimate the optimal allocation rather than simply dumping all of its holdings in one place. The allocation is constantly changing because other users are going in and out of live liquidity pools.
Profit farming became popular after the public realized the potential of crypto asset investment for passive profit. In the yEarn protocol, profit farming sees crypto assets move in tandem with the pursuit of the liquidity pool that provides the best APY from week to week. It also means switching to riskier groups from time to time.
In June 2020, placing stablecoins (USDT, USDC, DAI, or TUSD) in group Y will yield around 896% Annual Percentage Return (APY). As of now, there are over $650 million in crypto assets placed in group Y. As a result, it has one of the highest returns in the decentralized finance sector.
Is Yearn Finance different from other Crypto?
Yearn Finance works similarly to other lending platforms. It allows users to deposit any ERC20 stablecoin such as DAI, USDC, USDT, TUSD, or SUSD into the protocol and receive an equivalent number of yTokens (e.g., yDAI, yUSDC, yUSDT, yTUSD, and ysUSD). The yTokens are like any other ERC20 token. Then the underlying stablecoin is made available for lending.
Instead of lending stablecoins to any particular protocol, the Yearn Finance platform automatically converts tokens into the most profitable protocol to maximize user returns.
The network charges a small fee that is deposited into the platform’s pool and can only be accessed by YFI token holders.
What are the Challenges and Risks of Yearn Finance?
While YFI is currently a pioneer in DeFi yield farming, it is not the only lending platform. Several (often problematic) YFI forks have recently hit the market, and new profit cultivation aggregators like APY.Finance and wealth management platforms like Set V2. This could pose new challenges for Yearn.Finance in terms of industry competition.
Furthermore, the current profit from productive farming will fluctuate, and it will not last forever. There are many variables that can cause the public to stop buying new tokens and focus on those with stable value. In the end, it will lead to lower profits. Cryptocurrency experts and enthusiasts express hope that Yearn’s planned launch of insurance, exchange, leverage, and liquidation products can diversify YFI revenue streams and supply grant option value to YFI holders.
For now, YFI remains one of the most exciting advancements in decentralized governance. This protocol has created a large, diverse, and enthusiastic community of people who are always invested in the success of yEarn. In addition, Cronje’s ability to lead and diversify Yearn’s products is impressive.
It is important to remember that YFI is still a work in progress. That means there is no guarantee of a successful outcome or that YFI tokens will remain valid.
Yearn.Finance is a public, open-source project, and anyone can decide to mimic the protocol and concept. Over the past year, Yearn has encountered many imitators. However, not many possess the proprietary technology that gives Yearn.Finance an edge over its competitors.
The YFI token value is primarily associated with the community surrounding yEarn and reflects people’s trust in the protocol and the people behind it. That makes it unpredictable and highly speculative.
What is the future of Yearn.Finance?
The Yearn Finance project has received great attention since its launch. After the YFI token surpassed $40,000 in value within a few months of its birth, many called it “better than Bitcoin”.
Effective nature and protocols are what drive Yearn’s effectiveness. For this reason, the platform’s user base is likely to continue to grow in the coming years. In particular, Cronje has announced a new deriswap coming soon and an upcoming collaboration between Yearn and Cream. aims to focus on core leveraged and lending products that increase yield with leverage.
Yearn’s intention to “take down” DeFi for the average person turned out to be a winning strategy that catapulted Yearn to crypto stardom. His efforts to simplify the process and provide a better user experience stimulated YFI’s growth and mass adoption.
While Yearn’s yield farming strategy carries a high degree of risk, the protocol has so far balanced and delivered some great returns this year with relatively limited risk.
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