Open in app

Sign in

Write

Sign in

Yearn.finance: what is it and how does it works?

Gianmarco Guazzo
Coinmonks

--

Now that we have presented the world of Yield Farming and that we understand how it works from a general point of view, let’s try to understand which project is the most famous in this area and why it has attracted the attention of many crypto investors. The project is called yearn.finance and is a yield aggregation platform built on top of the Ethereum Blockchain, like all of DeFi. This project has become an ecosystem of protocols that aims to maximize returns, or APY, of its customers. The clients of the protocol provide liquidity that will be automatically diverted to the different sectors of the universe of decentralized finance to find the best returns.

The basic concepts

At the base of the platform we find two fundamental concepts that are an integral part of the project. The first, as previously mentioned and as explained in the last article, is Yield Farming. As we know, there are different types of Yield Farming that differ mainly in terms of Risk: there is the normal one, therefore the collection of fees providing liquidity, and the high-risk speculative one in which there is the concept of “ Leverage ”, where tokens are moved from one platform to the others to receive, in addition to fees, also newly minted tokens.

Yearn.finance is therefore a sort of liquidity manager who automatically searches for the best APY, always taking into account the level of risk the client is willing to work with. The concept of Yield Farming is positioned right here: depending on the risk, the platform will decide to provide liquidity where it is most convenient, optimizing the search for the best possible return, and moving the funds when a DeFi project, at equal risk , will have higher APYs.

When a higher risk is selected, the concept of Vault must be introduced: they are speculative products in which increasing the risk consequently also increases the possible return. The fundamental component of each Vault is the debt that is contracted: you use your own funds to borrow others, that is the collateral, increasing the liquidity available and therefore being able to do Yield Farming with a much higher yield. These funds are subsequently made available, in the form of liquidity, to platforms such as Curve which distribute tokens to lenders. In this way, the tokens issued are then sold in order to increase liquidity and manage to arrive at APYs that are close to 40/50% annualized.

Governance, YFI tokens and insurance products

In addition to the practical operation of yearn.finance, this project also has a governance token, typical of any DeFi project, which has made a lot of talk over the past few months. This token with the YFI symbol has become famous for exceeding the value of Bitcoin, historically the most expensive and important crypto in the industry. The YFI token reached an all-time high of $ 41,000, significantly exceeding the value of a Bitcoin and attracting the attention of many investors. The important thing to remember when talking about the price of a token is definitely the existing supply, and the reason why the price is so high. There are about 30,000 YFI in circulation, a significantly lower amount than the current 18.5 million BTC.

Another very important aspect when it comes to yearn.finance are the products that are released and that the community votes: in general, new Vaults, new strategies and new products are proposed. The latest proposed and really very interesting product of this platform is a kind of insurance that the customer can take out in order to insure their funds within the Vault, so that if a smart contract or a DeFi project is hacked the funds of the customer are not lost but returned by the insurance.

Official site and general appearance

Within the official website of the project we therefore find the following terms:
- Vault, i.e. speculative products, made available with the related strategies and implementations,
- Earn, i.e. the product with the lowest risk that finds the best APY depending on the liquidity made available,
- Zap, which is a tool that allows users to trade between various stable coins and various pools and save on the gas fee to be paid on Ethereum,
- Cover, i.e. the insurance on the invested funds which is calculated based on the time in which the funds are blocked and the quantity of the same.

Although the world of DeFi has shown some signs of weakness in the last period, the yearn.finance platform is one of the most interesting projects in the world of DeFi that, regardless of the token and speculation on it, will certainly be talked about.

Follow me for other articles in the Crypto and Blockchain world!

Also, Read

--

--

Gianmarco Guazzo
Coinmonks

Written by Gianmarco Guazzo

579 Followers
Writer for

+100k views on Medium, Bitcoin & Ethereum Enthusiast, Smart Contract Developer. Follow me for technical & informative web3 contents