Yearn.Finance and YFI token: The Complete Guide

The decentralized finance (DeFi) ecosystem has seen rapid growth over the past two years, with an explosion in popularity of some projects in the space setting it firmly on the crypto map. One of the protocols to hit the market in 2020 and stake a big chunk of the DeFi market is Yearn.Finance.

What is Yearn.Finance?

Yearn.Finance is an Ethereum-based decentralized finance protocol that aims at giving its users access to the highest possible yields on their token deposits. The project aims at simplifying how users can get into the rapidly expanding DeFi sector, even when those likely to be hampered for not being tech-savvy to handle trading.

Yearn.finance initially launched in February 2020 as iEarn before rebranding via a relaunch in July 2020.

The Yearn.finance protocol hosts the UIs that allow for access to its various products, including Vaults, Earn, Zap, APR, and Cover.

Essentially, Yearn.Finance provides for a set of protocols that allow users to earn when they lend, trade, or hold their crypto assets in various yield farming projects.

This is what the Yearn.Finance protocol is about, and the reason the total value locked in various tokens, stablecoins, and altcoins rose steadily to hit over $1 billion in TVL in September 2020. As of February 15, 2021, there's nearly $500 million worth of asset value locked in the protocol.

What is the YFI token?

YFI is the in-house or native token on the Yearn.Finance platform which is essentially a governance token.

YFI's launch has been labeled as the "fairest launch" of a cryptocurrency since Bitcoin's in 2009. This is because the project allowed anyone to participate in YFI generation with the coins pegged at the same price. There was no pre-mine or Initial Coin Offering (ICO).

It is this approach that saw a community of YFI users quickly build up and rally the coin's price as the protocol gained traction.

When he unveiled the YFI token, Cronje warned potential users that the cryptocurrency had "no intrinsic value."

Unlike with many other protocols, the YFI developers did not have any funding for the project and none were set aside for that purpose.

The initial supply was capped at 30,000 YFI tokens, most of which entered circulation immediately. It made YFI one of the scarcest cryptocurrencies in the market. Within hours of launch, the market competitively priced the token from $3 to over $1000 before it exploded further throughout August to hit a new high above $41,000.

It is currently one of the tokens with the highest value against the US dollar, trading at around $42,000 as of February 15, 2021.

On February 2, 2021, the Yearn.Finance community voted to mint 6,666 more YFI, increasing the total supply by 20%. The move was taken to help the protocol fund future developments, with 33% of the new YFI tokens going to the protocol's founders and developers while 66% would be reserved for future developments.

How to get YFI

You can earn YFI in three ways:

  1. Add a mix DAI and YFI in the ratio of 98%-2% to the Balancer protocol
  2. Deposit a stablecoin in Yearn.Finance’s annual financing
  3. Deposit YFI and yCRV on the Balancer exchange

You can also buy YFI tokens on the market or exchange other cryptocurrencies for YFI. This latter method is easy to carry out on Swapzone:

  1. Open the Swapzone main page
  2. Select the cryptocurrency that you have, a coin or a token
  3. Select the cryptocurrency you want to get in exchange: YFI
  4. Enter the amount you want to exchange.
  5. Select an offer in a list of partners
  6. Click “Exchange”.
  7. Enter the wallet address your exchanged coins are going to be sent to
  8. Click the “Proceed the exchange” button
  9. You’ll get the QR code with the address you have to send your coins to

Yearn.Finance Ecosystem

As noted above, the Yearn.Finance protocol has several core products that form the Yearn.finance Ecosystem. These include:

Vaults

Vaults allow users to enter a liquidity pool based on a given base asset and earn yields. For example, an investor can hold their ChainLink (LINK) token in the protocol and benefit from it by letting Yearn to "farm" on it using borrowed stablecoins.

The smart contract allows for a constant rebalancing and shifting of capital to seek out the best opportunities. The earnings are then converted back into the base asset.

Vaults are getting ever popular because the end-user doesn't have to be savvy about DeFi or yield farming. It can thus be a perfect strategy for a beginner trader or investor seeking passive income.

Earn

This was the first product in the Yearn ecosystem and works as a lending aggregator. On Earn, you can deposit any of the supported stablecoins and earn yields. The stablecoins are DAI, USDC, USDT, TUSD, and wBTC, which are continuously shifted between lending platforms dYdX, AAVE, and Compound.

Yearn achieves this by programmatically withdrawing and depositing the tokens from one protocol to another. The automatic shifting ensures users are getting the very best of interest rates as they fluctuate on either of the dYdX, AAVE, or Compound platforms. The result is that a user gets the best possible interest rates for the deposited stablecoins.

Zap

Zap is a tool on the Yearn platform that allows users to swap in and out of liquidity pools on the Curve.Fi protocol. "Zapping", as the activity is called, means a user can benefit from several liquidity pools as a liquidity provider using DAI, BUSD, USDC, TUSD, and USDT. Users have the option of getting into the y.curve.fi pool or busd.curve.fi pool, or any of the supported stablecoins.

yInsure

yInsure, also known as Cover, is an insurance product that allows users to get cover on potential losses over their smart contracts or when engaging any of the many Ethereum-based protocols.

yInsure is a decentralized insurance product underwritten by Nexus Mutual and which users can access without the need to undertake rigorous KYC processes.

StableCredit

StableCredit is a product that aims at allowing users to benefit from three key DeFi pillars:

  • Tokenized debt through DAI and Synthetic
  • Decentralized lending through Compound and AAVE
  • Automated Market Makers (AMMs) – Uniswap and Sushiswap

Conclusion

Yearn.Finance and its governance token YFI is a big cog in the DeFi ecosystem as it is. It has seen rapid growth, both as an ecosystem and in terms of its YFI value. Given the need for more decentralized finance products, increased decentralization in the governance of Yearn.Finance and its unique approach to space could see YFI become a mainstay of the DeFi space. Meanwhile, it is already making it easy for those with little to no technical know-how to earn passive income from holding various tokens.