What is Yearn.Finance (YFI) Coin?
If you’ve been holding onto some cryptocurrencies, you’re already ahead of the curve to protect your money’s value from depreciating due to inflation. So, while.
If you’ve been holding onto some cryptocurrencies, you’re already ahead of the curve to protect your money’s value from depreciating due to inflation. So, while your cryptocurrencies sit idly inside your wallet, why not make your crypto money work for you?
Yearn.finance (also known simply as Yearn) is a brilliant solution for those looking to invest in the decentralised finance ecosystem, but wants to take the complexity out of it.
With Yearn, you simply deposit your crypto assets and let the Yearn Protocol algorithm work for you to earn the highest interest on various decentralised finance (DeFi) platforms.
What is the YFI Token?
YFI is the native token (to be specific, an ERC20 token) on Yearn.finance, which is used for governance of the decentralised autonomous organisation that oversees the future development of Yearn.
Still confused about DeFi? Don’t worry, I’ll help you run through the basics below. If you are already familiar with DeFi and yield farming, go ahead and skip to What is Yearn Protocol.
Are you more interested in knowing about the YFI token? You’re welcome to skip to this section — What is the YFI token.
How do people earn interest on DeFi platforms?
The most important concept to know is that DeFi platforms function similarly to investment banks. Users deposit cryptocurrencies, tokens, or stablecoins into one of the investment products that the platforms offer.
In return, users receive an ‘IOU’ token that can be used in the future to redeem the deposited crypto asset and the rewards from the accrued interest.
Meanwhile, the platforms will use the aggregate deposits from many users to create a liquidity pool. Anyone can borrow from this pool and this incurs interest to the borrower. Lenders can also redeem their assets (plus interest earned) from this pool.
The annual percentage yield (APY) refers to the projected earnings from accrued interest if a user maintains his or her deposit for one year. Like all financial projections, this is not a guaranteed number.
Of course, all DeFi platforms are not controlled by any individual, group, or country. With no middleman present, the platforms will charge interest fees based purely on market conditions.
What is yield farming?
On Ethereum, a few notable DeFi platforms have existed for a few years, including Compound, AAVE, and Curve. While they all fall under the same category, each one of them functions differently, and thus will offer various yields depending on the current market conditions.
Yield farming is the practice of optimising earnings from DeFi platforms by moving funds around platforms that currently offer the highest yields on a particular time frame.
It came to the attention of Andre Cronje, the founder of Yearn.finance, that manually analysing and performing yield farming strategies are mentally taxing. Thus, Yearn.finance was born in 2020, as an automatic yield farming optimiser.
What is the Yearn Protocol?
As mentioned in the previous section, the Yearn Protocol is a set of algorithms that automates fund management in order to optimise yields from DeFi platforms.
Another way to think about Yearn.finance is that it works like a mutual fund manager. If DeFi platforms are individual stocks with varying degrees of performance, Yearn.finance automatically invests in the highest-performing platforms using aggregated (combined) funds from Yearn’s users.
Yearn also has other perks. Most newbies in the DeFi space can easily be overwhelmed by jargon and analysis paralysis. Beginners can also fall into traps and DeFi scams, since it is easy to fork (or create a modified clone of) DeFi platforms.
Yearn.finance is more welcoming for beginners, as it offers fantastic user experience and a large community of supporters who are willing to educate newcomers.
Want to dive deeper into Yearn.finance? Go to Yearn.finance’s official documentation.
How do users earn money on Yearn.Finance?
Yearn offers primarily two products, namely yEarn and yVaults. There are other smaller products that are derived from these products, but let’s just focus on these two to start with.
yEarn, a lending aggregator
yEarn is technically not a crypto lending service, but a lending aggregator. Users cannot directly lend stablecoins to a borrower. Instead, yEarn will take the assets to a lending service like Aave and manage the funds to attain the highest interest.
What are stablecoins? Here is a complete guide on stablecoins.
yVaults, a crypto savings account
yEarn only deals in stablecoins, whose value is pegged to national currencies like the USD. This makes it easier to lend. But what if you have some regular old cryptocurrencies, like bitcoin and ether?
The mechanism to lend and generate profits in cryptocurrency terms is mind-blowingly complex. However, you can think of it like earning a profit generated from rent, as crypto assets can be viewed like property.
In fact, in order to mint stablecoins like DAI, a collateral in the form of cryptocurrencies must be used. Because overcollateralisation is crucial to make it work, yVaults is often viewed by yield farmers to be more risky compared to yEarn.
What is YFI? The governance token of Yearn.Finance
YFI (pronounced like ‘wifi’, if you’re curious) is a governance token. Holders of the YFI token have the right to vote on improvement plans, and since the founding team steps back to allow the community to govern the platform autonomously, YFI has seen a meteoric rise in value.
It is currently valued at around US $42,900 (in June 2021) on Easy Crypto, and it is more expensive than bitcoin per unit. It is divisible up to 1000 times, where 1000 andres = 1 YFI.
How come it is more expensive than bitcoin? The supply cap for YFI is only 30,000 YFI, compared to bitcoin’s 21 million BTC. From the lens of the supply-demand dynamic, it all makes sense.
Interestingly, the team behind Yearn.finance wrote that YFI had no financial worth from the start, as it is just a governance token.
“…[We] have released YFI, a completely valueless 0 supply token. We reiterate, it has 0 financial value. There is no pre-mine, there is no sale, no you cannot buy it, no, it won’t be on uniswap, no, there won’t be an auction. We don’t have any of it.” Cronje wrote on Medium.
What makes the YFI token unique?
The creator of YFI said it — it has no intrinsic value. But extrinsically, there is an appeal surrounding YFI. For one, the founding team funded the entire project themselves. There was no initial coin offering (ICO), which many projects use to raise funds.
This means that the YFI token is more distributed, unlike, say, XRP crypto coins whose founders have already owned a large portion of the supply.
There was no pre-mine or pre-minting, meaning that the token is purely earned as a reward for early users who deposited money into the liquidity pool. This gives the early risk-takers the greatest rights to govern the direction of this project.
Despite the limited supply of YFI, the governance-focused token economics of YFI is what drove a huge community following into the space. This is what gives the YFI token the unexpected monetary value that it holds today.
Andre Cronje himself is synonymous with DeFi, as he was one of the earliest players in the DeFi space.
Should you invest in Yearn.Finance (YFI)?
Combining the scarcity of YFI, the authority and humility of the founding team, and Yearn’s unmatched contribution to decentralised finance, YFI tokens have the potential to grow as a crypto asset as well as a governance tool to shape the future of the platform.
Investing in projects like Yearn.finance is easy if you use the right platform. Easy Crypto offers an incredibly diverse collection of crypto assets, tokens, and stablecoins.
Buying or selling them here is simple, stress-free, and more importantly, adheres to your local regulations.
Get on board now. Buy YFI tokens here.
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated August 24, 2022