What is Yearn Finance (YFI)? Understanding the innovative DeFi protocol and its role in decentralized finance

What is Yearn Finance (YFI)? 

Yearn Finance encompasses a comprehensive range of Decentralized Finance (DeFi) offerings, including lending aggregation, yield generation, and insurance, all operating on the Ethereum blockchain. This protocol is managed by a group of independent developers and governed by YFI holders, ensuring that all aspects of Yearn's services are decentralized.

How does Yearn Finance work?

Yearn Finance offers four primary products:

1. Vaults: These are staking pools that aim to generate returns by capitalizing on market opportunities. Vaults benefit users by pooling gas costs, automating yield generation and rebalancing, and adjusting capital as required.
2. Earn: This was Yearn's inaugural product, serving as a lending aggregator. It automatically shifts funds between dYdX, AAVE, and Compound based on changing interest rates, ensuring users receive the best rates available.
3. Zap: This tool allows users to swap between liquidity pools on Curve.Finance using five stablecoins (BUSD, DAI, USDC, USDT, TUSD).
4. Cover: This offers insurance to users, providing coverage in the event of financial losses resulting from various smart contracts and protocols across the Ethereum network.

The amount of YFI a user earns is determined by the quantity of cryptocurrency locked in Yearn Finance contracts running on the Balancer and Curve DeFi trading platforms, utilizing the yearn.finance platform.

Yearn Finance primarily operates through "yield farming," a practice where users lock up their cryptocurrency in a DeFi protocol to earn interest, usually in the form of additional cryptocurrency. The more cryptocurrency a user locks up in one of the supported platforms, the more tokens they receive.

In its initial month, the yearn.finance platform witnessed approximately $800 million in assets locked, establishing itself as one of the most rapidly expanding DeFi projects.

Who founded Yearn Finance? (History of Yearn Finance)

Yearn Finance was founded and launched by Andre Cronje. Unlike many in the cryptocurrency space, Cronje did not raise any private or public funding for the yearn.finance protocol, nor did he reserve any tokens for himself.

Cronje is a well-known figure in the cryptocurrency industry and has become closely associated with DeFi.

Since its launch in July 2020, Yearn has managed to hold assets worth just over $1 billion at one point in time.

What sets Yearn Finance apart?

Yearn Finance aims to simplify DeFi investment and activities like yield farming, making them more accessible to newcomers. The platform utilizes custom tools to aggregate DeFi protocols like Curve, Compound, and Aave, enabling users to find the best interest rates for staking cryptocurrency.

The platform generates revenue through a 0.5% withdrawal fee and a gas subsidization fee of up to 5%, which adjusts based on Ethereum network congestion. These fees can be modified through the platform's decentralized governance model by user consensus.

What is the source of value for Yearn.Finance (YFI)?

YFI serves as the ERC-20 cryptocurrency that oversees and encourages activity within the Yearn Finance ecosystem. YFI holders have the authority to influence the governance of yearn.finance by participating in voting on various proposals. For a proposal to be accepted and integrated into yearn.finance's codebase, it must receive more than 50% of the votes. While anyone can propose changes, only those holding YFI tokens can vote on the adoption of these proposals.

YFI initially had a fixed supply of 30,000 tokens, but this can be increased if deemed necessary by YFI holders. The current maximum supply stands at 36,666 YFI.

YFI holders have the opportunity to earn revenue from the protocol's fees. Yearn Finance charges a 5% fee for its Vault service and a 0.5% fee for the Earn feature, providing attractive incentives for YFI holders.

Users of Yearn Finance can earn YFI by providing liquidity and engaging with the ecosystem. The amount of YFI they hold determines their voting power on community proposals that impact the platform's future.

What is the current circulating supply of Yearn.Finance (YFI) tokens?

The Yearn Finance protocol's native token, YFI, started with a maximum supply of 30,000 tokens. There was no pre-mine before the launch, and the developers did not receive any initial funds. The circulating supply at launch was 0 YFI.

After the launch, the majority of the supply has entered circulation, and the maximum supply has increased. The success of Yearn Finance is evident in its high token price and engaged user community.

Other technical data

Yearn Finance's Vaults represent one of its most sophisticated and popular offerings. These Vaults enable users to adopt tailor-made, dynamic investment strategies through the protocol's autonomous code. Essentially, Vaults function as cutting-edge, actively managed mutual funds, providing incentives to participants.

Vaults reside at the complex end of Yearn Finance's spectrum, primarily because the strategies they employ are articulated in the Solidity programming language. As a result, individuals interested in establishing their Vaults must possess a degree of coding proficiency to comprehend their inner workings.

Despite the complexity of managing a Vault, investing in one is remarkably straightforward. Through the Yearn Finance user interface, users can easily deposit stablecoins like DAI and USDC directly into any desired strategy/Vault. Each Vault is accompanied by its historical return on investment (ROI), simplifying the investment process.

How does the Yearn Finance Network ensure its security?

Users of Yearn Finance may encounter a moderate risk of financial loss as market conditions can swiftly change and opportunistic entities may seek to exploit less-experienced participants. Despite undergoing independent code audits, creator Andre Cronje has emphasized the platform's inability to guarantee 100% safety at all times. This underscores a fundamental aspect of decentralized finance (DeFi): inherent risk.

How to use Yearn Finance?

Yearn Finance provides a range of products to meet users' DeFi requirements. The platform utilizes its native YFI token for rewarding liquidity providers and YFI holders, and as a governance token for voting on community proposals that could impact the protocol's future.

How to choose a Yearn Finance wallet?

YFI is an ERC-20 token, meaning it can be stored in any wallet that supports Ethereum. Your choice of wallet may depend on the quantity of YFI tokens you possess and your intended use for them.

It looks like you're interested in different types of wallets for storing cryptocurrencies like YFI tokens. Hardware wallets, such as Ledger or Trezor, offer high security but can be complex and expensive, best suited for experienced users with large holdings. Software wallets, both custodial and non-custodial, are simpler and often free, making them more suitable for beginners with smaller amounts. Online wallets or exchanges, though less secure, can be convenient for small holdings or frequent trading, as long as you choose a reputable service.

Kriptomat seems like a good option for secure storage and trading of YFI tokens, offering both security and user-friendly features. If you have any specific questions or need more information, feel free to ask!

Staking Yearn Finance

Yearn Finance users and holders of the YFI token have various options for staking their holdings. One option is to hold the token to earn a percentage of the platform fees. Another option is to invest YFI into a Vault, which typically offers a higher yield but comes with increased risk due to Vault volatility.

In conclusion, Yearn Finance and its decentralized financial products are attractive to those seeking passive interest on their cryptocurrency holdings, without the need for a custodian. Investing in YFI tokens could also be appealing for those bullish on the growth of the DeFi sector and Yearn's potential to attract more users interested in earning passive income on their crypto holdings.