Yearn Finance and how it works

By CNBCTV18.com IST (Published)

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Launched in 2020 by Andre Cronje, YFI offers its users access to high returns on their crypto deposits and has become extremely popular with investors. Let’s understand what Yearn Finance is and how it provides users with some of the best returns in the industry.

In recent years, there has been a dizzying growth in the decentralized finance (DeFi) space. To put this into perspective, the total value locked in DeFi protocols in October 2020 was around $9.31 billion, while in October 2022 the same figure was $54.7 billion, according to data from DeFiLama.

One of the major players in this ever-expanding space is Yearn Finance (YFI). Launched in 2020 by Andre Cronje, YFI offers its users access to high returns on their crypto deposits and has become extremely popular with investors. Let’s understand what Yearn Finance is and how it provides users with some of the best returns in the industry.

How does Year Finance work?

Yearn Finance is an APY boosting protocol that is based on the Ethereum blockchain. It works as a decentralized bank whose sole objective is to maximize the profitability of crypto assets for its users. It has a simple web interface through which users can access various lending and trading services, including Vaults, Zap, Earn, and APY (more on this later).

Basically, Yearn Finance acts as an aggregator and moves user funds between various DeFi products like DyDx, Aave, and Compound. This is done to ensure that Yearn Finance users benefit from the best interest rates and maximize their profits. Furthermore, the entire process is automated and uses smart contracts to decide and invest in the best yield-generating strategy.

Let’s look at the four Yearn Finance commodity offerings

Gain

Earn was the first service offered by Yearn Finance. Users deposit their cryptocurrencies and the platform will move the funds to the DeFi protocols that offer the highest interest rates. Yearn Finance currently distributes user funds between Aave, Compound, Dydx, and other similar DeFi platforms. Automatically assign user tokens to one or all of these liquidity protocols and earn higher interest rates than traditional financial instruments. However, this feature is only compatible with tokenized bitcoin products and stablecoins such as sUSD, Dai, TUSD, USDC, and USDT.

Vault

Vault is Yearn Finance’s flagship offering. It is similar to a savings account at a bank; users can deposit their cryptocurrencies and the platform will use the best strategies to get the most out of the amount deposited. Instead of ending up there, however, these earnings are used to generate liquidity provider (LP) rewards, interest returns, trading fees, and other earnings.

Users can choose from more than 50 such vaults, and each one will have its own strategy. These vaults use pre-programmed logic to change capital and use code automation to decide the ideal yield generation and rebalancing process.

Zap and APY

Zap allows users to make multiple deposits in one action instead of switching between multiple platforms. Avoiding all the extra steps of a cross-platform transaction results in low gas fees and less time consumption. On the other hand, APY is a simple tool that collects the interest rate offers from the various DeFi lending protocols and puts them in front of you for easy reference. This can help investors choose the right platform for their investment needs.

YFI Token

Launched in 2020, YFI is the native cryptocurrency of the Yearn Finance ecosystem. It also serves as the governance token of the platform and allows holders to vote on various decisions related to the platform. Any proposal that gets more than 50 percent of the votes ends up being implemented on the platform. YFI supply is limited to 36,666 tokens. This decision was made to avoid further price inflation. Furthermore, the entire supply of YFI was distributed only to users; there was no pre-mine through which Andre Cronje or the Yearn Finance team received tokens.

conclusion

Yearn Finance allows users to maximize their passive income by depositing their existing tokens. Users can get the highest returns without a middleman like a bank. Furthermore, users do not need to go hunting for the best platforms and the highest yields; Yearn Finance does it for them, using nothing more than smart contracts and automated code. All of these factors make Yearn Finance a popular choice for investors. At the time of writing, YFI was at $8,097 with a trading volume of $12.10 million in the last 24 hours.

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