yEarn started as a yield aggregator for DeFi platforms. Built by Andre Cronje, it is now a leading DeFi platform with it’s USP shifting towards vaults and insurance offerings.
Behind the scenes, Yearn Finance is a decentralized application built using Ethereum smart contracts. The contracts work closely with Curve.fi which is a liquidity pool for stablecoins. It earns from trading fees supplemented by iEarn which also lends your stable coin in the background to the lending protocol with the best lending rates out of Compound, dYdX, and AAVE.
Yearn Finance finds the best possible return for yield farming of stablecoins and other cryptocurrencies to eliminate the need for expensive research or rebalancing every time some platform increases their earnings. The vaults feature of Yearn Finance extends this capability into finding the best possible path for DeFi investment. This includes a variety of strategy implementations across the DeFi space.
The governance token for Curve.fi is CRV. Yearn works closely with Curve to amplify the earning out of the tokens from the Curve.
What is yearn finance?
Yearn finance is the UI portal for connecting to the smart contracts.
yEARN finance is a decentralized application built on Ethereum which offers DeFi products for yearning returns. It works like any other world-wide-web application but its coding is maintained by smart contracts.
The governance token for Yearn.finance is YFI. Yearn finance offers the following services:
Zap is a conversion service that facilitates swapping between ERC-20 tokens in exchange for liquidity provider (LP) tokens for earning on Yearn Finance. While convenient for newbies, Zap does take a lot of gas and could be costly, even more so than doing it yourself manually.
The APR is table with the stats on the current returns on the different DeFi lending platforms of each token supported by yEARN.
The highest APR for each coin is the provider that Earn is lending these coins to at the moment.
Underwritten by Nexus Mutual, which is a loan insurance provider, yInsurance provides protection against smart contract risks. Since it is decentralized, it does not require KYC and ALM compliance.
yEarn vaults are like automated DeFi experts who find the best strategies to invest in DeFi platforms. Cryptocurrency invested in Yearn Vaults is put to work on different DeFi protocols. This includes providing liquidity, collateral for loans, and using the yields from one protocol and re-investing in other DeFi platforms.
The strategy for investment is decided by a vote on the proposals from the community.
For now, Andre watches the markets and writes most of the new strategies. When he and the 9 other multi-sig validators approve that the contracts are safe while giving the highest yield in the market, it gets implemented. They change them according to current yields on the market.
The image below lists the vaults supported on the yEarn platform. The majority of the vaults are based on stablecoins (DAI, TUSD, USDC, USDT, and curve pools) with a varying APY between 20%-85%.
Cryptocurrency based vaults included Bitcoin and Chainlink pools with handsome gains as well.
yEarn Vaults Strategy
The strategies for investment are modular smart contracts curated by Andre Cronje, the founder of yEarn.finance. Anyone can propose a strategy on the forum in the strategy section and if approved by Cronje and the multi-sig, it is implemented until the next strategy change. Each strategy offers different APY from time to time.
The contributors to the strategy formation and in implementing the code are paid from the yields from the contracts. 90% of the returns from the strategy are paid to the LP or vault members, while 10% of the returns is paid to the strategy designer.
How Does Yearn Vault Work?
Understanding what goes on beneath the vault is what brews the magical returns out of these vaults. Yield is achieved by providing the asset for lending, liquidity provider (LP) on automated market makers (AMM), or farming strategies.
Earning in DeFi involves a variety of things:
- Earning from fees on decentralized exchanges.
- Returns from the interest paid for lending on decentralized loan platforms.
- Earning from code and idea contributions for DeFi apps.
- Yield Farming of liquidity and governance tokens.
- And many more
What is Yearn Ethereum Vault?
The yEarn vaults until August end were based on stablecoins, Curve tokens pools, Bitcoin, and Chainlink. On August 31, Cronje launched Yearn Ethereum vaults (yETH) as an attempt to maximize the yields on Ethereum. Moreover, in return for their liquidity, users earned yETH which is a representation of their holdings in the yEARN vault.
Yearns’ Ethereum vaults deploy a specific strategy for Ethereum vaults. For instance, loaning DAI with Ethereum as collateral and reinvesting the DAI in LP or lending platforms to maximize those returns.
The above example is the most basic strategy for obtaining DeFi returns on Ethereum. Nonetheless, could be difficult for newbies to understand and implement. Yearn vaults aim to cut down on the research and trust-building required while exploring avenues of earning from DeFi. It automates the entire process into one deposit and withdrawal transaction.
Along with direct ETH deposits, yEARN vaults also offer the Wrapped Ethereum (wETH) vault, which is essentially an ERC20 token representation of ETH. The Ethereum from wETH is locked via a smart contract protocol and an equal amount of wETH is issued.
How to Use Yearn Vaults? A Step by Step Guide
Step 1: The first step is to arrive at the vault with this link: https://yearn.finance/vaults
Step 2: The second step is to connect a wallet to the vaults by clicking on the connect wallet option on the right-hand side top. Remember, the details of the vault will not be released until the connection to a wallet is made. yEARN currently holds the following vaults.
The following wallets can be used to connect to the vaults:
Step 3: Deposit
After connecting the wallet, the vaults listed on Yearn.finance become accessible.
For instance, to deposit in the DAI stablecoin vault, the users can set the amount from the balance in their wallets. Similarly, in exchange ETH and wETH, the vault depositors gain yETH and ywETH.
Step 4: Paying the Fees
After confirmation, the amount an fees for executing the smart contract to add to the vault is calculated. The fees vary between $10-$100 depending on the GAS fees and limit on the Ethereum network.
Step 5: Withdrawal from the Vaults
When the user wishes to make a withdrawal of their positions in the vault, they must exchange their yTokens (yDAI or yETH) which is required to withdraw their vault holdings or liquidate their positions.
Withdrawal from the vaults can come from two sources, the active strategy vault or Yearn vault reserve. If it is coming from the reserve, no fee is charged for withdrawal. However, if liquidity is taken off of the DeFi strategy in implementation, a 0.5% withdrawal fee is charged.
The subsequent earnings from the vault are adjusted accordingly to the new balance after the withdrawal. The earnings are mentioned on an annual basis but are paid for the time the liquidity is held in the vault. Hence, if the average APY for the vault is 100%, in 6 months a 1 ETH deposit will earn 0.5 ETH in the vaults.
Due to the lucrative returns on holding Ethereum, the vaults saw significant deposits on the first day itself. In less than 72 hours since its launch, the vault was closed after locking in $139 million ($100 million on the first day itself). The wETH vault has been halted as well.
The deposit to the vaults was disabled not long after its launch.