YEARN FINANCE And YFI Token Explained | DeFi, Ethereum

Summary

The 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

00:00

🧭 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.

05:03

🔄 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.

10:04

🔍 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.

Keywords

💡Yearn Finance

Yearn Finance is a decentralized finance (DeFi) platform known for its yield-optimizing strategies. It automates the process of finding the most profitable lending protocols in the DeFi ecosystem, maximizing returns for its users. In the script, Yearn Finance is the central subject, described as a protocol that switches between different lending protocols to optimize yield for users' stablecoins.

💡Yield Optimizer

A yield optimizer, in the context of DeFi, is a system or protocol that seeks to maximize investment returns by automatically moving assets between different financial strategies or platforms. In the video script, the Yearn Protocol is described as a yield optimizer, highlighting its role in automatically selecting the highest paying lending protocol for stablecoins.

💡Stablecoins

Stablecoins are cryptocurrencies designed to minimize price volatility by being pegged to a stable asset, like the U.S. dollar. In the video, stablecoins are central to the Yearn Finance's operations, as users deposit them into pools to receive yield-bearing tokens in return.

💡Liquidity Mining

Liquidity mining is a process in DeFi where users provide liquidity to a protocol and receive rewards, often in the form of tokens. The script mentions liquidity mining in the context of Compound's COMP token distribution, noting its impact on the complexity of finding the best yield strategies.

💡Yearn Vaults

Yearn Vaults are pools of funds on the Yearn Finance platform, each following a specific investment strategy to maximize returns. The video describes these vaults as more active than simple lending, involving strategies like farming other tokens, providing liquidity, or borrowing.

💡Governance Token

A governance token gives holders the right to vote on decisions concerning a blockchain protocol's development. In the script, the Wi-Fi token is introduced as Yearn Finance's governance token, used to decentralize decision-making and give the community a say in the protocol's future.

💡APY (Annual Percentage Yield)

APY refers to the annual rate of return accounting for compounding interest. In the context of the script, APY is a crucial metric for Yearn Finance, as the protocol seeks to maximize it by automatically moving funds between different lending protocols.

💡Y Tokens

Y Tokens are yield-bearing tokens issued by Yearn Finance when a user deposits stablecoins into a pool. These tokens represent the user's share in the pool and accrue interest. For example, depositing DAI yields YDAI, as explained in the script.

💡Andre Cronje

Andre Cronje is mentioned in the script as the founder and developer of the Yearn Protocol. His role was pivotal in automating the process of finding high-yielding lending protocols and expanding Yearn Finance's ecosystem.

💡Decentralized Finance (DeFi)

Decentralized Finance, or DeFi, is a blockchain-based form of finance that eliminates intermediaries by using smart contracts on blockchains, primarily Ethereum. The script revolves around the DeFi ecosystem, with Yearn Finance being a significant player in offering decentralized lending and yield optimization services.

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

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to help this channel grow thanks for

watching