YEARN FINANCE And YFI Token Explained | DeFi, Ethereum
Summary
TLDRThe video explains the origin and mechanics of the Yearn Finance protocol and its YFI governance token. It starts by describing how Yearn automates choosing optimal yield farming strategies for stablecoins. It then covers the evolution of Yearn, from automating lending strategies to complex vaults that maximize returns. The video also details the fair launch and distribution of the YFI token to decentralize governance. It concludes by noting Yearn's active community and speculation that drives YFI's price appreciation, despite the protocol's core utility from yield optimization strategies.
Takeaways
- 😀 Yearn Finance aims to maximize DeFi yields through automated strategies
- 👨💻 Creator Andre Cronje built Yearn to optimize yields on his stablecoins
- 🏦 Yearn automates moving funds between lending protocols for best APY
- 🔀 yTokens let users earn interest while retaining claim on the deposited assets
- 🌱 Adding COMP liquidity mining made finding best yields complex
- 🏦 Yearn Vaults automate complex yield farming strategies for assets
- 🚀 Governance token YFI had a fair launch, rewarding early Yearn users
- 👩🚀 YFI is used for protocol governance decisions by the Yearn community
- 📈 YFI price rose from $6 at launch to $30K+ within two months
- 🔎 Yearn keeps innovating new DeFi products but understand risks first
Q & A
What is the primary function of the Yearn Finance protocol?
-The primary function of the Yearn Finance protocol is to act as a yield optimizer, focusing on maximizing DeFi capabilities by automatically switching between different lending protocols to achieve the best APY for users.
Who created the Yearn protocol, and what was the motivation behind its creation?
-The Yearn protocol was created by Andre Cronje. His motivation was to automate his strategy for choosing the highest paying lending protocol for his stablecoins to avoid the manual and repetitive process of checking and moving funds daily.
How does the Yearn protocol work with stablecoins and yield-bearing tokens?
-When a user deposits a stablecoin into the Yearn protocol, they receive yield-bearing tokens (yTokens) as a representation of their deposit. These yTokens allow the protocol to pool funds and move them between different lending protocols to maximize yield without swapping the initially deposited stablecoin for another.
What is the YCRV liquidity pool, and what role does it play in the Yearn ecosystem?
-The YCRV liquidity pool contains yTokens like yDAI, yUSDC, yUSDT, and yTUSD. It facilitates easy swaps between yTokens without unwrapping them into their underlying tokens, allowing users to earn trading fees on top of returns from their yield-bearing tokens.
How did liquidity mining and yield farming impact the Yearn Finance protocol?
-Liquidity mining and yield farming, exemplified by Compound's COMP token distribution, dramatically changed the landscape for finding the best yields. It made the process more complex, as users now had to account for extra tokens being distributed, affecting Yearn's strategy in optimizing returns.
What are Yearn Vaults, and how do they differ from the protocol's initial offerings?
-Yearn Vaults are pools of funds with associated strategies for maximizing returns on assets. Unlike the protocol's initial focus on lending, Vaults employ more active strategies, such as farming tokens, providing liquidity, or borrowing stablecoins, and are governed by the Yearn community.
What is the purpose of the YFI token within the Yearn ecosystem?
-The YFI token serves as a governance token, decentralizing the decision-making process of the Yearn protocol. It allows token holders to vote on proposals and make decisions regarding the protocol's future, fostering community involvement and ownership.
How was the YFI token distributed, and what was unique about its launch?
-The YFI token distribution was designed to be fair, with no pre-mine, no allocation to venture capitalists, and no team rewards. All tokens were distributed to protocol users over a 9-day period, focusing on rewarding the community and ensuring a fair launch.
What were the security measures taken to protect the governance of the YFI token?
-To secure the governance of the YFI token, the single admin key initially controlling the protocol was replaced with a multi-sig key, requiring multiple signatures from DeFi community members. This measure aimed to mitigate risks associated with a single point of control.
How does the Yearn Finance ecosystem extend beyond the core protocol and Vaults?
-Beyond the core protocol and Vaults, the Yearn Finance ecosystem includes other services like ySwap, yTrade, yBorrow, and yInsure. These services offer additional functionalities, such as trading, borrowing, and insurance, expanding the utility and reach of the Yearn ecosystem.
Outlines
🧭 Introduction to Yearn Finance and YFI Token
This section introduces Yearn Finance, highlighting its core component, the Yearn or Yarn Protocol, designed as a yield optimizer in decentralized finance (DeFi). It narrates the protocol's inception by Andrei Cronje, aiming to automate the selection of the highest-paying lending protocol for stablecoins, thereby eliminating manual checks. The protocol pools each stablecoin, issuing yield-bearing Y tokens in exchange, and optimizes yields by dynamically switching between lending protocols without converting the original stablecoin. The segment also touches on the protocol's evolution with growing pools, necessitating more complex strategies, and its integration with Curve's yCRV liquidity pool to facilitate easy swaps between Y tokens.
🔄 Evolution of Yearn Finance and Liquidity Mining Impact
This paragraph delves into the transformative impact of liquidity mining, exemplified by Compound's COMP token, on the yield farming landscape, making the identification of optimal yields more complex. It introduces Yearn Vaults as advanced tools for maximizing returns through active strategies like farming tokens, providing liquidity, and borrowing. Vaults are governed by community-voted strategies. The narrative progresses to the distribution of the YFI governance token, emphasizing its fair launch, community-focused distribution, and its role in decentralizing protocol governance. The dramatic value increase of YFI tokens and the risks associated with governance control are also discussed. The paragraph concludes with a brief mention of other Yearn services, underscoring the protocol's broad impact on the DeFi ecosystem.
🔍 Final Thoughts on Yearn Finance and Community Engagement
The concluding paragraph invites viewers' opinions on Yearn Finance and the YFI token, encouraging engagement through comments. It reflects on the importance of understanding associated risks in DeFi and prompts viewers to subscribe and support the channel for more content, showcasing the creator's interest in fostering a community around educational content on DeFi.
Mindmap
Keywords
💡Yearn Finance
💡Yield Optimizer
💡Stablecoins
💡Liquidity Mining
💡Yearn Vaults
💡Governance Token
💡APY (Annual Percentage Yield)
💡Y Tokens
💡Andre Cronje
💡Decentralized Finance (DeFi)
Highlights
Introduction to decentralized finance and Yearn Finance.
Yearn Protocol as a yield optimizer automating the switch between lending protocols.
Andre Cronje's motivation for automating his stable coin lending strategy.
Creation of the Yearn protocol to automate finding the highest APY.
The protocol's mechanism of issuing yTokens in exchange for deposited stable coins.
Yearn Protocol's strategy to always maximize yield without swapping the original stable coin.
Expansion of the Yearn protocol to a broader audience and its benefits.
Adaptation of Yearn strategies due to increasing pool funds and APY changes.
Collaboration with Curve on the yCRV liquidity pool.
Introduction of liquidity mining and its impact on yield farming.
Creation of Yearn Vaults for maximizing returns with active strategies.
Distribution of the YFI governance token to decentralize decision-making.
YFI's fair launch strategy with no pre-mine or team allocation.
Risk management with the transition to a multi-sig governance model.
The speculative and actual value increase of the YFI token.
Expansion of Yearn Finance services beyond the core protocol.
Advice on understanding risks before using DeFi protocols.
Transcripts
confused about how why earn finance
works
and what is the wi-fi token all about
you'll find out all of this and more
in this video before we begin if you're
interested in learning more about
decentralized finance
make sure you subscribe to this channel
okay
let's start with what why earn finance
is all about
the main element of why earn finance
is the why iron or yearn protocol
the iron protocol in essence is a yield
optimizer
that focuses on maximizing defy
capabilities
by automatically switching between
different lending protocols
before we explain the mechanism of the
protocol itself
let's see how yearn came into existence
in early 2020 the author of the yearn
protocol
andrei cronier started looking into
automating his strategy
for choosing the highest paying lending
protocol
for his stable coins before the first
iteration of the protocol
andre had to wake up every day and
manually check
which protocol pays the best apy on that
day
and consider moving his funds to that
protocol
there are always a few options available
at the time
such as compound ava fulcrum
or dydx this manual work quickly became
repetitive and boring
so andrei started coding the first
version
of the yearn protocol to automate the
whole process
of choosing the most optimal strategy
for his stable coins
the protocol in essence creates a pool
for each stable coin by depositing a
stable coin to a pool
the user receives their y tokens that
are yield
bearing equivalence of the coin that was
deposited
for example if a user deposits die
the protocol issues wide eye the dye
that is pulled together can then be
moved between different landing
protocols
to always maximize the yield for
instance
if ave offers a better yield on diet
than compound
the iron protocol can decide to move all
or some of the die to other the protocol
checks if there is a better yield
available
at the time a user deposits or withdraws
money from the pool
triggering a rebalance of the pool if
necessary
if a user wants to withdraw their
initial die
plus accrued interest they can redeem
their wide eye
and receive the underlying die one thing
that the protocol always assures
is to never swap the initially deposited
stable coin
to a different stable coin even if there
is a higher yield available
so for example if a user deposits die
the protocol would never swap it to usdc
even if usdc has a higher yield
this is because most users want to
withdraw the same stablecoins
as they initially deposited after the
initial version of the protocol was
completed
andrei decided to open it up to more
people
who were also interested in automating
their yield strategies
from the protocols perspective adding
more funds to the pool
was beneficial as there were more
opportunities for triggering rebalances
with more deposits and withdrawals
taking place
after the initial warm welcome by the
community
andre started working on improving the
protocol itself
as the money in the pools started
growing some of the previously obvious
strategies
like moving coins into the highest
paying lending protocol
stopped working now the protocol
had to also anticipate what would happen
to the apy
if a large amount of funds are moved in
so it would have to also optimize
splitting funds
between different protocols and choose
the most
optimal solution at this point andrei
also started working with curve on the
ycrv liquidity pool
ycrv pool contains the following y
tokens
y die y usdc y
usdt and y tusd
making it easy to swap between the y
tokens
without unwrapping them into their
underlying tokens
by depositing stable coins to the ycrv
pool
the users can earn trading fees for
providing liquidity
on top of getting a return on their
yield bearing y
tokens up to this point finding out what
the best api on a given stablecoin is
was fairly easy this changed
dramatically
with the introduction of liquidity
mining with compound's comp token
distribution as a prime example
the comp token distribution was also
pretty much the time
when all the yield farming hype started
if you need a recap on yield farming and
liquidity mining
you can check out this video here
comp farming basically changed the whole
landscape
of finding the best yield and checking
the apy
of a deposit was no longer sufficient
to find out the actual yield you would
have to add up
all the extra tokens that were being
distributed
finding the best strategies became more
and more complex
with all the yield farming craze going
on andrei
together with the yearn community
started working on another idea
vaults yearn walls in essence
are pools of funds with an associated
strategy for maximizing returns on the
asset
in default vault strategies are more
active than just lending out coins
in fact most of all strategies can do
multiple things
to maximize the returns such as
farming other tokens and selling them
for profit
providing liquidity or borrowing stable
coins
each vault follows a strategy that is
voted in
by the yearn community the full
explanation of the vault's mechanism
is outside of the scope of this video
but i'll make another one
that focuses just on this super
interesting topic
so make sure you subscribe to this
channel to stay in the loop
now let's talk about the yearns token
wifey
to further decentralize the yearn
protocol and allow other people
to make meaningful decisions on the
future of the protocol
andre decided to distribute a governance
token
to the yearn community the token
distribution
was focused on having a fair launch and
rewarding the yearn community to ensure
a fair launch
the wi-fi token had no pre-mine
no vcs allocation and even no
team reward all the tokens were
distributed to the users of the protocol
a 9 day long token distribution started
with allocating 10
000 wifi tokens to the liquidity
providers
of the white crv pool the lps
had to stake their ycrv lp tokens
to receive wifey rewards shortly after
two more balancer pools were added with
10
000 tokens each totaling 30 000
wifi tokens regardless of a disclaimer
that the wifey token has zero financial
value
the money started flowing into the
incentivized pools
topping 600 million dollars in locked
value
also the wi-fi token itself started
rapidly appreciating in value
this created additional risk as the
author of the protocol
was in control of the governance admin
ki
before the governance went live
this key could potentially be used to
create more wi-fi tokens
which would result in collapsing the
price of wifi
this was quickly fixed by changing the
single admin key
to a multi-seek key requiring
multiple signers from the defy yearn
community
the wifey token as design is extensively
used
in the yearn governance to decide on the
future of the protocol
with one of the most active and loyal
communities
in the whole defy space there's also
a lot of speculation on the potential
future revenue
from the wi-fi tokens that fuels the
price appreciation
the wi-fi token increased in value from
around
six dollars when it started trading to
over
thirty thousand dollars per token
less than two months later pretty much a
parabolic run
although the earned protocol and most
recently the vaults
are at the core of the yearn finance
ecosystem
there are also other services such as
why swap why trade why borrow
and why insure that are outside of the
scope of this video
you can look them up by checking some of
the links i'll put in the description
box below
yearn is clearly one of the most
interesting protocols
in the device space but like with pretty
much
everything else in defy before deciding
to use a particular protocol
always make sure to understand the
associated risks
so what do you think about yearn and the
wifey token
did you manage to participate in their
initial token distribution
comment down below if you like this
video don't forget to smash the like
button
subscribe to my channel and check out
cinematics on patreon
to help this channel grow thanks for
watching
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