Pantera Partner: Interpretation of Popular DeFi Aggregator Yearn Product Features and Governance

  • Yearn Finance is a revenue aggregation protocol implemented on the Ethereum blockchain. Users can deposit Crypto assets into the agreement, and the assets will be allocated to various DeFi lending agreements and liquidity pools to generate the highest return. The current agreement basically revolves around four main products:
  • This is a smart contract system in which users can deposit assets in a fund pool, and smart contracts can search and re-search for the most ideal agreement to lend (calculated by simple interest annualized interest rate APR).
  • Zap: This is a one-step solution to exchange any Crypto asset for any other Crypto asset. For many Crypto asset exchanges, users must undergo a series of intermediate exchanges, which can be difficult to manage or expensive. Zap handles these issues programmatically on the backend, allowing users to easily exchange assets, especially in batches.
  • APR: This is a breakdown of the APR of different assets and loan agreements, and provides a high-level quantitative reference for arbitrage strategies.
  • Machine Gun Pool Vault: This is similar to the liquidity pool in other DeFi products. Users can deposit assets in these fund pools, then invest them in liquid mining plans (such as Compound’s COMP token), and then exchange them back to the original assets. Yearn Vault is responsible for finding the best way to invest in liquidity. In essence, this is a way for users to make money through liquidity mining.
  • Up to now, Year has locked up Crypto assets with a total value of nearly US$850 million, making it the fourth highest among DeFi Pulse’s agreements based on the total locked value TVL.
  • The core of Yearn’s operation is the arbitrage strategy of various capital pools and vaults, which determine which DeFi protocols should be allocated tokens. Yearn has adopted a decentralized approach to the governance of these strategies and launched a governance token called YFI. Investors can mine YFI by investing their assets in Yearn, and then reinvest the produced yToken into the governance contract , Return YFI to the user. Each YFI roughly corresponds to one vote in the agreement. Only 30,000 YFI tokens can be allocated during the entire life cycle of the agreement.
  • Yearn calls YFI a “valueless” token, which should be obtained, not purchased, but the token has skyrocketed from its initial valuation of $32 to the current $15,359. Earlier this month, the market price of the token overpowered BTC and became the first governance token whose market price exceeded BTC. Considering that the ultimate supply of YFI is 30,000 tokens, the current market value of the token is USD 477 million. The token has been traded on Binance Exchange and Uniswap.
  • Yearn’s founder Andre Cronje originally proposed Yearn’s idea to maximize the return on the assets of his family and friends by investing stablecoins in various lending agreements. When he expands his investment scale and optimizes his arbitrage strategy, he writes it into smart contract code, which can evaluate the risks and returns of various lending agreements and transfer assets accordingly. This has evolved into the current form of Yearn, and users can get rich returns without active management of funds.
  • In the end, Yearn Finance has become one of the hottest and most promising DeFi products today, because it provides daily users with a win-win mechanism that can get returns from their Crypto assets with almost no expenses. Yearn automates the process of identifying the best lending agreement or liquidity pool, and programmatically manages user assets to maximize returns. The skyrocketing price of YFI further proves the promise of the agreement, because the community sees the real tangible value of the governance of the agreement. It is an excellent template for a new round of DeFi products. These products make full use of the recent boom in liquid mining and Crypto asset loans, while maintaining an intelligent decentralized management system to encourage and reward community participation.


“The Brave Little Locomotive” (American classic fairy tale)-DeFi version

As more and more cryptocurrency projects provide opportunities for decentralized protocol governance and liquidity mining, DeFi or decentralized finance has aroused great interest. Liquidity mining is when users use Crypto assets (crypto tokens) as collateral for the liquidity of another protocol (such as Compound), and in return, they will receive a corresponding share of management tokens for the protocol. With the popularity of these protocols, the value of these governance tokens has become higher and higher, and liquidity mining has become one of the fastest ways to generate large returns in cryptographic methods today. Some liquid capital pools (users can invest in tokens and lock them as liquid funds) can even get more than  200% compound interest annualized income APY .

The boom around liquid mining has begun to prove that governance (tokens and more generally, rights) can have real financial value (just like company stocks). The premium of governance tokens naturally encourages more and more people to participate in DeFi, because they can gain control and rewards from the field. Nevertheless, the forefront of the topic of encryption is always the most valuable token, such as BTC. Although liquidity mining is profitable, the ownership of shares in the governance agreement is far less valuable than holding BTC.

Until August 20 ushered in a historic day, the price of Year Finance’s governance token YFI reached 16,600 U.S. dollars, overwhelming BTC. This governance token took just two months to complete the nearly 11-year price increase of BTC.

What is Yearn Finance?

Yearn Finance is a revenue aggregation protocol implemented on the Ethereum blockchain. It is like a high-level financial router, examining various indicators (such as APY) of different DeFi protocols (Compound, dYdX, etc.), and finding the best way to invest in user assets to maximize liquidity Income from sexual mining and borrowing.

Yearn currently operates mainly around four key products: Earn, Zap, APR, and Vault (or yVault).

Earn is Yearn’s income aggregator, which can optimize user income through loan agreements. Users can deposit assets in Yearn, and its smart contract searches for the highest rate of return among DeFi protocols such as Aave, Compound, and dYdX, and lends it to the protocol. The protocol rebalances the interaction of smart contracts-which means that every time a user deposits or withdraws assets, the protocol will reassess the location where the highest rate of return can be found and transfer assets accordingly. This usually sounds tricky, because it requires not only understanding which protocol can provide the highest APR, but also the fluctuations and possible changes in APR. Yearn has built-in strategies to assess, minimize and eliminate risks.

Zap is a streamlined protocol that can be converted between different DeFi assets. Not all assets currently support 1:1 conversion in DeFi. This means that users may have to exchange a series of tokens to exchange their initial tokens for one or even several intermediate tokens before they can finally get their target tokens. Zap simplifies the process, handling all intermediate exchanges on the backend for users, making it a seamless token exchange.

APR is an information dashboard in which Year tracks the current APR of various DeFi tokens in different lending protocols. The purpose of this is to provide information so that users can understand the best arbitrage strategy from the perspective of God.

Vault is another way for users to earn revenue on Year, similar to Earn products, except that Vault uses non-traditional methods (not strictly investing in the agreement that generates the highest APY) to generate revenue, but similar to liquidity Sexual mining. yVault (its predecessor is yTokens, the concept is similar) is essentially a liquidity pool. Users can store crypto assets in these fund pools, and as the Yearn Protocol allocates this liquidity in the most profitable way, the fund pool will grow. The agreement will track each user’s share in the entire Vault, and the user’s personal income corresponds to the Vault’s income and its individual specific share. A new advancement in yVault is the concept of entrusted Vault. In the delegation Vault, users can deposit LINK tokens, and Year will allocate these LINK tokens as collateral for the Aave protocol. In exchange, Aave uses a stablecoin such as USDC to return to Yearn, which can increase in the liquidity pool. Finally, Yearn can exchange the increased USDC amount back to LINK, thereby increasing the user’s LINK amount.


Yearn is trying to expand in a variety of ways, including launching other new tokenized financial products. Among them, is a particularly exciting product under development. It is a tokenized model of insurance. The liquidity provider LP (playing the role of an insurance company) can deposit tokens in the liquidity vault. LP locks its tokens and obtains economic benefits through premiums paid by policyholders. Claims are also paid from the Vault, and customers can provide assets to the Vault, where they trade tokens such as USDT with Vault tokens such as yiUSDT to insure their USDT tokens. The agreement deducts a fee (similar to a premium) from the customer’s balance every week to pay the insurance company (here, LP). Customers can pledge yiUSDT to submit insurance claims, and LPs can vote on claims based on their share in the Vault.

How does Yearn deal with governance issues?

For any agreement such as Yearn, governance is the core theme because it fundamentally determines the arbitrage strategy of the agreement. For this reason, Yearn launched the governance token YFI. Community members can make suggestions by earning YFI and vote on the agenda related to Yearn governance.

YFI was originally intended to serve only as a voting token, not a financial asset. Yearn itself recommends that users earn the token instead of buying it. You only need to deposit assets in Yearn, and then invest the output yToken into the distribution contract to earn tokens, which will return the YFI shares in proportion. The user can think that 1 YFI corresponds to 1 vote in the agreement.

The agreement described YFI as “no value.” In fact, due to its limited supply and extremely high demand, the token will inevitably generate value-Yearn only plans to distribute 30,000 YFI tokens during its life cycle, which is much smaller than the distribution of other tokens (such as Bitcoin). A capped circulation of 21 million). As Yearn’s popularity and total value grow, the perceivable value of YFI tokens also grows. Both Binance Exchange and Uniswap listed the token for trading, while listing on Binance increased its value by 50%, while listing on Uniswap increased the value of its token by 4000%. The initial transaction price of YFI was US$32, but it is currently US$15,359.70, which is higher than the value of BTC. It is expected that the final supply of YFI will roughly translate into a market value of USD 477 million.

Why does YFI’s value soar so rapidly? Like the combination of the limited supply of tokens (30,000 tokens, especially for the DeFi governance protocol, which is a small number) and the lock-in total value of the Year protocol, the latter largely depends on its Popularity and performance. As of the writing of this article, Yearn Finance has locked up an amount of US$847.9 million, which   ranks the 4th highest in total locked value among all agreements listed by DeFi Pulse . Combining these factors, the value of YFI has grown because the Yearn Agreement has brought real value to its investors, and its investors have many incentives to become part of the governance of the agreement.

How does Yearn start?

Yearn’s witty founder Andre Cronje started out as a legal professional, and later became interested in computer science and financial technology. Before the birth of the Yearn project, Cronje received much attention in the DeFi field for reviewing the code and architecture of multiple protocols and evaluating their security and future success. He initially started Yearn as a private project, managing investments for friends and family, trying to find the best way to invest in stablecoins in various DeFi protocols. As his capital allocation strategy matured, he began to encode these strategies into smart contracts, and introduced the concept of yToken (the currency obtained by investing in Year), re-inquired the most attractive APR returns, and configured user input accordingly Crypto assets. Slowly, he promoted the general configuration of the system and began to open it to the public.

One of Yearn’s strongest competitive advantages is its token distribution strategy, which currently produces the highest return in the DeFi field. Naturally, as the number and variety of products increase, Cronje’s optimal investment strategy for managing all Yearn fund pools becomes tricky. This naturally brings the idea of ​​decentralized governance. YFI token owners can vote on issues such as the strategy and protection mechanism of the protocol, so that they can better expand according to the interests of their users.

Final thoughts

Yearn builds a processing layer on top of the DeFi lending agreement and liquidity pool to maximize the rate of return. The crazy growth of the agreement has made the amount locked in the smart contract more than 800 million US dollars, which shows that an appropriate arbitrage strategy can bring huge returns to users who want to invest in the DeFi agreement and capital pool. The genius of Yearn is that it is a completely seamless experience for users. They only need to deposit assets and get the return; all algorithmic calculations, token allocation and currency exchange are processed programmatically in the background.

But the most interesting thing is that Yearn proves that governance has real value, and its value is huge. After seeing the rewards of liquid mining and the rapid appreciation of governance tokens, the crypto community is increasingly interested in decentralized governance. Nevertheless, no governance token can appreciate as quickly as YFI, and can surpass the value of BTC in just a few months. This also happened when the founder referred to YFI tokens as “no value”. At the time of writing, a single vote on the Yearn agreement actually costs $15,000; participation rights in these governance agreements are in high demand, especially considering that Yearn locks in a huge total value. YFI legitimizes the governance concept spawned by encryption in many ways and sets new standards for decentralized financing, governance, and loans.

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