If you have checked the latest crypto news, you must have heard about DeFi and the yearn.finance project. Its YFI token has surged by one mln percent in just two weeks and costs much more than bitcoin right now. So, I want to reveal how this could have happened and what is all the buzz about.
Yearn.finance is a DeFi yield aggregator that runs on the Ethereum blockchain. Yield aggregation refers to investing using the most current optimal strategy to maximize returns. It is a kind of financial router that checks the performance of various DeFi protocols (such as AAVE, Compound, and dYdX) and finds the best way to invest user funds.
Right now, Yearn.finance includes four solutions:
- Vaults. This solution is similar to liquidity pools in other DeFi products. Users can deposit assets in these pools, which are then invested in liquidity extraction schemes (f.e., COMP) and then swap back to the original asset. Yearn Vaults is an automated way to earn via liquidity mining;
- Earn. This is a smart contract system where users can deposit assets into the pool and contracts to select the best protocol for participation in the loan;
- Zap is a service for digital assets exchange. It’s not that easy to exchange DeFi assets. So, users have to go through a series of intermediate exchanges, which can be expensive or difficult to manage. Zap processes these transactions automatically, making all these processes much easy;
- APR is an information service with current interest rates on various assets and credit protocols.
There are more new features, just around the corner. For example, yInsurance is the other solution under which insurers receive passive income in the form of insurance premiums. Insured users receive coverage at the monetary value of the assets they insure. One more is the v2 Vaults.
Total value locked in Vaults
How does it all work?
The project's keystone is the arbitrage strategies for various pools and vaults that decide where tokens should be allocated. A special token, YFI, was launched to govern the project. It can be used to propose changes and votes related to the management of the yearn.finance protocol.
An explanation of how everything works
YFI was supposed to be only as a governance token . So the token should be earned, not be bought. That's why the creator of the project, Andre Cronje, pointed out that YFI token has no real value. YFI can be earned by investing assets into Yearn protocol, and then re-investing the output yToken into a governance contract that returns YFI to the user. Each YFI token corresponds to a singular vote in the protocol.
One more explanation of how Vaults works
What happened?
If the YFI token was meant to be "useless," in real life, the token price was bound to increase due to its limited supply and high demand.
A total of 30,000 YFI tokens were minted, which is much less than in other cryptocurrencies (f.e., the maximum number of bitcoins is 21 million, Binance coin is more than 176 million). As the popularity and amount of funds locked in the protocol increased, the price of YFI tokens also grew. Uniswap, Binance, Coinbase Pro, and other exchanges listed the project: listing and trading on Uniswap increased the token price by 4000%, subsequent listings of Binance, and Coinbase Pro gave a significant impetus to growth.
At the same time, YFI token initially traded from the mark of $32, then soared to $40 000. Right now, it is about $20 000, which is higher than the price of BTC.
yearn.finance chart (source)
So, what made YFI token grow so fast? I believe that this is a combination of several factors:
- the limited supply of tokens;
- the total value of assets locked in the Yearn protocol, which has greatly affected its popularity and performance of the Ethereum network;
- clever work with the community and building confidence in the project - from the "most honest launch" and many materials even on the most complex mechanics of the project to the public image of the project creator Andre Cronje. This point became especially crucial in the DeFi-environment amid the scandal with the SushiSwap project;
- constant work on project development.
Every week information about new features is being released. So the most promising right now is Vaults v2. It will specify expected behavior for Vault users, governance management expectations, rewards structure for strategists, and etc. There are tons of work is being made in optimization and improvement of UX of existing products, as well as research on DAO management capabilities.
Summary
Right now, Yearn Finance has $647.9M locked in the protocol as the 7th largest DeFi project. Its token has set an incredible precedent in the industry: YFI has become much more expensive than bitcoin in less than two months. In general, YFI’s price has surged because the Yearn protocol has brought new real value to its investors. Moreover, the crypto community was dramatically interested in decentralized governance and optimization of yield farming, the two key features of yearn.finance. That’s why it would be fascinating to follow this project and the new idol of the cryptocurrency world Andre Cronje.