DeFi Token Spotlight: Yearn Finance
A Detailed Dive into the one of the original Automated Market Maker’s and Decentralized Portfolio Rebalancers
The key characteristics of DeFi
Yearn: The Original Yield-Bearing Digital Asset Vaults
Avalanche at a Glance
Co-Founded by Anatoly Yakovenko in 2017, Solana is a high-performance, permissionless layer 1 blockchain that aims to achieve scalability through implementing several novel design mechanisms. Existing blockchains, such as Ethereum, can only process 15 transactions per second. This limitation often results in a congested network, and the ramifications are exponentially rising transaction fees as well as slowed confirmation time on transactions. Solana’s goal is to solve these issues by implementing several unique designs.
Solana has 8 key innovations that allow it to perform as one of the fastest, cheapest blockchains despite rising demand and usage. The in-depth analyses of these innovations can be found here, written by Anatoly Yakovenko. Solana differs from Ethereum starkly and requires a different programming language to build on. This means all new infrastructure must be developed from the ground up, something Ethereum began in 2014.
In summary, these innovations allow the current state of Solana to sufficiently process 2,000+ transactions per second, without the threat of exponential rising transaction fees. In time, as processing chips become more advanced due to Moore’s Law, the Solana network’s throughput capabilities will tenfold, allowing it to potentially achieve 50,000+ transactions per second.
In 2021, Solana saw exponential growth within several key areas. This growth can be seen by the increase of wallet address, Total Value Locked (TVL), and Solana’s market capitalization.
Yearn at a Glance
Innovation within decentralized finance (DeFi) is constantly expanding. The development of liquidity pools led to an explosion of innovative financial products for traders to explore. This surge in new DeFi products was a main catalyst behind the summer of 2020 DeFi bull run. One of these new financial applications was Yearn Finance, a DeFi protocol that offers a suite of financial products that help users achieve optimal yield on their digital assets. Yearn was deployed on the Ethereum blockchain and is maintained by various independent developers from within the community.
Yearn developed algorithmic trading strategies to optimize yield across all DeFi platforms on the Ethereum blockchain. This means users do not need extensive knowledge of the underlying protocols used to generate the yield. Users simply deposit their digital assets into the yVault (yearn vault) and Year will automatically route the deposited funds through the optimized strategy to earn a yield on their deposited assets. The APR of each yVault depends on the present opportunities available in the DeFi market. The yVault strategies will automatically rotate capital to new arising opportunities.
YFI and the yVaults: Earning Yield
yVaults can be viewed as savings accounts for users’ digital assets. The vaults are capital pools that generate a yield for depositors based on the present opportunities in the DeFi landscape. Yearn’s vaults provide a beginner-friendly way to participate in the financial opportunities present in DeFi. By algorithmically routing the trading strategies behind the scenes, users only need to deposit their digital asset into the yVault, and the rest is handled by the protocol. yVaults are constantly looking for the best yield opportunities in DeFi and optimizing returns for depositors. yVaults include features such as auto-compounding yield and rebalancing holdings to maximize returns.
The fee structure behind yVaults is uniquely designed to optimize longevity for the protocol. Each yVault has two fees associated with it:
- Performance Fee (20%)
- Management Fee (2%)
The Performance Fee is deducted from the generated yield every time a yVault harvests a specific strategy. This is the incentive for the Yearn protocol to maintain the most optimized strategies for the yVaults, to help increase the revenue for the protocol. The Management Fee is an annual flat rate fee that, instead of charging the user, is extracted by minting new shares of the vault and diluting the vault participants.
YFI is the main governance token for Yearn. YFI holders are delegated voting power based on their total holdings. Governance proposals can be made to upgrade the protocol or adjust parameters for yVaults. These decisions are implemented by a group of independent community developers that maintain the protocol. By providing an optimized, automated trading strategy for any type of DeFi trader, Yearn has managed to amass over $2 billion in Total Value Locked (TVL) for its products. Catering to the novice trader will help direct capital to its products, making it easier for beginners to get familiar with the new market.
FEATURED EDUCATION
DeFi 101: A Guide to Decentralized Finance
Decentralized Finance, or DeFi, has been rapidly gaining traction amongst the investment community. DeFi protocols, like Solana, Chainlink, or Uniswap, have real-world utility (and revenues) that are quickly displacing their traditional counterparts that require intermediaries to function.
In this digital resource, we’ll cover:
