Decentralized Finance – Is it really such a big deal?
If you’re reading this right now it’s quite certain that you have an interest in the crypto space and are familiar with how Decentralized Finance works. But nevertheless, here’s a brief intro on DeFi and why it’s important to the main topic of discussion – Creating and launching your own Decentralized Protocol like Yearn Finance.
Before the advent of blockchain technology, all financial services and cryptocurrency exchanges were centralized. Meaning, these services were under a central authority like a bank. These centralized services and human resources limited the speed of transactions, increased the possibility of fraudulent activities, and gave users very little control over their assets.
Enter DeFi, all financial activities were decentralized, giving back the baton to the asset holders. The Blockchain technology and smart contracts built on the Ethereum platform made this happen. As a result, several protocols or applications of DeFi started popping up like Decentralized exchanges, Stablecoins, and lending and borrowing platforms. One such protocol of DeFi is the topic of our interest – Yearn Finance.
What is Yearn.Finance?
Developed and introduced by Andre Cronje, a South African financial technology developer, Yearn.Finance or simply yEarn is a DeFi protocol. Yearn finance is basically a portal that leads users to various other DeFi protocols that yield the highest interest rates or in other words, the highest Annual Percentage Yield (APY). Some of these other DeFi protocols are Uniswap, Aave, Compound, Fulcrum, and Dydx.
To make it more elementary, Yearn is a simple intuitive user interface to all DeFi protocols. It is a community-driven adviser for yield farming. At its core, it is a yield adviser. Yearn Finance is the only protocol on the DeFi platform that holds the reputation of being the gateway for users to make the highest APY on their Stablecoins. A few of the Stablecoins supported by Yearn Finance are DAI, USDC, USDT, TUSD, sUSD, and Ether.
It monitors and supervises the market leaders to make sure the deposited funds remain in the highest paying pools.
The workflow of Yearn Protocol explained
- Let’s assume a user deposits a Stablecoin, say Dai into the pool of the Yearn protocol.
- In exchange, they will receive a vault deposit token called YDai( Y tokens, also called yield optimized tokens) in return. This YDai is a yield-bearing equivalent.
- Its value will keep growing as the yield farming strategy does its work.
- The Yearn protocol will scour the market for the best platform that offers the highest APY so the users can see high returns.
- If and when it suits the user, they can turn in their YDai and receive their earned interest but a withdrawal fee of 0.5% is incurred.
- A small percentage of the profits earned are also collected as a fee for the developers, in our case, the protocol owner.
- One condition that users need to keep in mind is that they can only withdraw the Stablecoin that they deposited and not another.
- For instance, if a user has deposited Dai, they can only get back Dai and not swap it with USDC, even if USDC is yielding high APY.
Benefits of Yearn.finance
- Very secure
- Recognized as one of the most decentralized platforms in DeFi
- Offers an amalgamation of technologies to defy centralized sectors
- Offers sustainable yields
- A streamlined approach to DeFi
- Provides an open-source code that has been authenticated by the Yearn community
Other protocols of Yearn Finance
There are several protocols that run within Yearn Finance that have gained a lot of popularity. Some of these faces of DeFi are Vault, Earn, Dashboard, Zap, Cover, and Stats. In this blog, a brief look into the most popular protocols/features of Yearn – Vault and Earn are discussed.
Vault pretty much does what the Yearn protocol carries out – helping those who deposit their coins in the pools find the highest yield(APY) in the market. The protocol tries to increase rewards and decrease risks. When launched, Vaults supported only Stablecoins but now they support Ether, other tokenized Bitcoin, and Chainlink. It uses more complex yield farming strategies to get users higher yield. Each Vault uses a strategy that is voted in by the Yearn community. Vaults have seen more success than Earn and the developers are trying to add new strategies for farming and new cryptocurrencies as well.
The Yearn protocol developers are currently working on the updated, second version of Vault which will constitute benefits like cancellation of withdrawal fees, multiple yield farming strategies for pools, and also hopefully assuage the reduction on yield earnings that large vaults provide.
The other Yearn Finance protocols like Earn are a similar version of the Vault protocol but the difference is that it only supports tokenized Bitcoins and Stablecoins. Here’s something you might wonder about the Earn protocol. Wouldn’t dumping all the coins in the highest yield-bearing protocol invariably reduce the APY? It does! That’s why the Earn Protocol is designed in such a way that anytime a user deposits in a pool, the protocol rebalances to optimize the yield of the pool.
What’s the buzz around YFI Tokens?
YFI is the governance token for Yearn. There are only 30,000 of these and they have been distributed to the depositors of key liquidity pools that have benefited the Yearn Finance project.
The token holders have the right to vote on the policy proposals of the project. The concept behind this strange decision was that those who use the Yearn protocol should govern it too. The YFI token initially had no intrinsic value but it can be supplemented by depositing it in the liquidity pools of the protocols.
Since the launch of the YFI token, its value has skyrocketed. It was traded for over $44,000 in August 2020, surpassing the value of Bitcoin. If an individual wants to earn a YFI token, they’d have to trade it in a Decentralized Exchange or provide liquidity to Yearn Finance’s pools.
Benefits and use cases of the YFI token
- The coin owner gets to have a say/influence in the Yearn.finance network
- They can earn returns on the YFI tokens.
- For depositing the tokens in liquidity pools, rewards are earned.
- In-built smart contract
Several other features and functionalities of Yearn Finance
Ever since its success with projects like Vault and Earn, Yearn finance is chugging out various other protocols that aid users. Some of the latest ones include:
- Yliquidate.finance – This new feature allows users to take flash loans in protocols like Aave. The reason behind these loans is to liquidate funds in an efficient manner as necessary.
- Yinsure or Cover – Since there are a lot of risks involved within DeFi, this feature provides insurance for those who have deposited their assets in various protocols.
- Yswap.exchange – Using this feature as a single source, users can deposit funds to and between various other DeFi platforms.
- Zap – This feature allows users to ‘zap’ their Stablecoins to Curve Liquidity Provider tokens and those LP tokens to other Stablecoins.
- Ytrade.finance – This makes way for users to long or short their Stablecoins or cryptocurrencies with 1000X leverage.
From all this information, it is quite certain that Yearn finance has made a considerable impact in the Decentralized Finance sector and has changed the dynamics of yield farming, trading, and liquidity pools. It is no surprise that the platform is growing widely. As of now, there is more than $650 million worth of crypto assets staked in the Yearn protocol.
So, businesses and entrepreneurs who are currently looking for lucrative business ventures can stake their claim by building a Decentralized protocol like Yearn Finance. By creating a protocol like that, you can introduce your platform to a wide audience and be the go-to DeFi platform for all their trading and exchange needs. Apart from that, you as the protocol owner can benefit from incentives such as withdrawal fees, etc.
You need to pick Blockchain App Factory to create your own decentralized protocol like Yearn Finance!
We, at Blockchain App Factory, are pioneers in the DeFi protocol and dApps development industry. Our expertise and skills when it comes to understanding and analyzing the latest trends in the crypto market give us an edge over our competitors. Our DeFi Yearn Finance protocol development services are completely scalable and customizable should your business grow to startling heights. The white label component that is a part of our solutions will give your brand the highest visibility and boost it requires to make a name for yourself in the DeFi space.
Get in touch with us soon to develop and launch your own DeFi protocol like yEarn Finance and scale your ROIs to stunning heights!