The Bankless Guide to Yearn Finance
Yearn Finance is a decentralized finance (DeFi) protocol that serves as a yield aggregator. Its suite of products offers a way for individuals, decentralized autonomous organizations (DAOs), and other protocols to deposit digital assets and earn yields accordingly in a streamlined fashion.
What is Yearn
Yearn’s aggregator system operates on the principle of pooled funds, with system participants depositing their cryptocurrency into a shared pot. Yearn's smart contracts then allocate these pooled funds to different DeFi lending protocols with the aim of automatically maximizing APY.
Yearn’s flagship offering is its yVaults series, which is often described as savings accounts for crypto assets. When you deposit tokens into a Yearn vault, they are put to work within the DeFi ecosystem, returning yields back to you over time. The assets are routed through strategies which seek out the highest yield available, and unlike traditional finance, all of this takes place on public blockchains, meaning you are in control of your assets and can see where they are at all times.
The fee structure for yVaults includes a Performance Fee, which is deducted from yield earned every time a vault harvests a strategy, and a Management Fee, which is a flat rate taken from vault deposits over a year. The fee is enacted by minting new shares of the vault, thereby diluting vault participants. Fee values for all yVaults can be checked in real-time at yearn.watch.
The pulse of Yearn
Yearn Finance was launched in February 2020 by the developer Andre Cronje. The platform was initially known as iEarn before rebranding to Yearn Finance in July 2020. The protocol was one of the first to introduce yield farming to the DeFi space, and it quickly gained popularity due to its innovative automated yield farming strategies.
The native governance token of the Yearn ecosystem, YFI, was introduced in July 2020. Unlike many other projects, no tokens were pre-mined, and the entire supply was distributed to users of the protocol. This distribution method was revolutionary at the time and has since been emulated by many other projects in the DeFi space.
In September 2020, Yearn first introduced its Vaults system, which has since become very popular in DeFi. Today, Yearn has over 250 strategies and 100 yVaults deployed on Ethereum, with more additionally deployed on Fantom, Arbitrum, and Optimism. The total value locked (TVL) across all of these deployments is currently $385 million USD, making Yearn the 27th-largest protocol in DeFi at the moment.
The development of Yearn is governed by holders of the YFI token, which at the time of this guide’s latest update was trading around $5,716 USD each. With a market cap of $189 million, the high price per coin here stems from YFI’s very low token supply, which is capped at 36,666 YFI.
However, YFI isn’t the only token in the Yearn ecosystem. Among others there’s also the yCRV token, which is a yield-bearing token provided by Yearn when you deposit Curve liquidity provider (LP) tokens into Yearn’s yCRV Vault. Accordingly, yCRV represents your share of the vault and the yield it generates.
How to use Yearn
Making a yVault deposit
- Connect your wallet using the button at the top right corner of the Yearn Finance website.
- Select the vault that you would like to deposit into.
- Enter the amount of tokens you want to deposit into the vault.
- Click the “Approve” or “Deposit” button depending on if you have previously approved Yearn.
- Confirm your deposit transaction, afterwards you will see your deposited balance in the vault's interface, which should appear at the top of the vault list.
Withdrawing from a yVault
- Select the vault that you would like to withdraw from. Click the "Withdraw" tab.
- Enter the amount you want to withdraw, or click “Max” to withdraw the entire balance.
- Click “Withdraw.”
- Your wallet will ask you to confirm the transaction.
- When your transaction succeeds, your tokens will appear in your wallet again.
Risks of Yearn
As with any DeFi platform, there are certain risks associated with using Yearn:
- Smart contract risk: While Yearn has been audited and battle-tested in production, it still faces the threat of previously undiscovered bugs or exploits, whether these issues stem from within Yearn’s code itself or from external projects where Yearn is farming.
- Regulatory risk: The regulatory landscape for DeFi platforms like Yearn is currently uncertain and subject to change.
Additional Yearn resources
If you’re interested in diving deeper into the Yearn ecosystem, be sure to check out these helpful resources:
Yearn Finance is one of the most storied protocols in all of DeFi, and it’s responsible for having originally put “yield aggregators” on the map in crypto. While Yearn’s current TVL may be way down from its ~$7B peak in December 2021, the project is still a force to be reckoned with in DeFi, and it continues to enjoy one of the most talented indie development teams in all of the space.