Yearn Is The Future Of DeFi, And DeFi Is The Future Of Finance
Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it. — Ferris Bueller
The world has never seen an industry move at the speed that DeFi is moving. Innovation in DeFi is able to move at warp speed because DeFi is composable, meaning you can take the innovation of others, and like legos, snap it together with other code, and you’ve got something completely new. Ferris’ quote above has been shortened, and updated for tech/crypto:
I test in prod — Andre Cronje, Founder of yearn
In the 3+ year I’ve been crypto 24/7, yearn is the most interesting and expansive project I’ve seen:
Yearn is so impressive because it takes the massive opportunity and remarkable complexity of DeFi, makes it simple to use, while deeply integrating with leading DeFi protocols (e.g. Uniswap & Curve), and leveraging community as a powerful moat.
Since launching on July 17, yearn’s asset management platform has grown to over $1.2 billion in crypto assets managed to optimize yield:
This post is not a deep dive in to yearn. It’s meant as a primer. Unfortunately, you won’t understand yearn very well when your done. But you will better understand yearn’s roots and its ambitions. And if you understand those elements, and you’re curious, you’ll want to learn more.
It All Started With iearn.finance
On January 26, 2020, Andre Cronje (yearn’s Founder) launched iearn.finance to optimize returns from lending assets to platforms like Compound and Aave, and providing liquidity on Uniswap. Andre’s first update, on February 7, revealed the rapid pace at which he was already innovating. But as iearn grew, it quickly ran in to problems, mostly related to it’s growing scale.
On July 15th, Andre wrote that the yield farming craze, which kicked off in June when Compound introduced it’s governance token, made it apparent that “profit switching decisions would no longer be sufficient”. He wrote that what was needed was …
“a new kind of product, something that instead of trying to choose between these options, seeds these options”.
Over the next days he published a series of posts detailing the building blocks that were needed, starting with a yield aware AMM, a stablecoin that acts as a transfer mechanism, and yswap.exchange, which allows users to deposit single sided liquidity for AMM pools without incurring impermanent loss.
On July 17, Yearn Was Announced — Don’t buy it. Earn it
The announcement of yearn/YFI laid out a series of forthcoming products. All users needed to do to earn YFI tokens was “…provide liquidity to one of the platforms, stake the output tokens in the distribution contracts, and you will earn a (governance controlled) amount per day”.
Later that day, yearn announced its first product was live, the curve.fi/y pool (now at over $750 million). On July 19, Yearn announced two new pools. The first new pool would farm Balancer tokens by providing liquidity to whitelisted pools. The second new pool would combine the ability to receive the best interest from stablecoin deposits, with the functionality of both the curve.fi/y pool and the Balancer pool.
Each of the three pools was granted 10,000 YFI governance tokens to be earned by community members over time. On a side note, on September 12th, Andre formalized his desire to cap the number of YFI tokens to the 30,000 already minted by submitting a proposal to “Burn YFI minting ability permanently”.
On July 24th, Andre announced yearn V2, which included three major new elements, yVaults, a Controller enabling a subset of governance to manage each vault to optimize yield strategies, and simplistic containers holding Strategies to maximize returns on specific assets however they can, in a lossless way. The rewards are split between the governance ecosystem, the yield farmers, and the strategy creator.
On August 24th, yearn announced yinsure.finance, a new insurance primitive, and it’s booming. On August 29th, Andre announced Delegated Funding DAO Vaults to fund teams building in the yearn ecosystem. Any profits are shared between vault LPs.
Again, the rate of innovation through August has been truly astonishing. Below is a great video on the history of yearn through August:
Introducing StableCredit, A Protocol For Decentralized Lending, Stablecoins, & AMMs
On September 10th, Andre announced StableCredit, yearn’s most ambitious and innovative project to date. By combining the functionality of lending, stablecoins, and a decentralized exchange, yearn is creating a new DeFi primitive, a single sided decentralized lending protocol:
Messari graphic showing how it combines stablecoins, lending, and a decentralized exchange
Users will be able to provide any asset (e.g. ETH) to StableCredit, and based on the value (determined by Chainlink) of the asset, an equal amount of tokenized credit is issued in the form of StableCredit USD. The ETH and StableCredit USD are then put in to a 50:50 pool on Uniswap. By leveraging Uniswap, StableCredit gets instant access to all of Uniswaps integrations with aggregators who keep the pool in balance by arbing, ensuring StableCredit USD stays at its peg. StableCredit USD will be the world’s most scalable decentralized stablecoin.
Based on a utilization rate, the asset providers can use up to 75% of StableCredit USD issued to purchase other assets (e.g. LINK) in the StableCredit pool. The AMM defines the premiums at which assets are borrowed and repaid.
StableCredit will create more liquidity for yearn vaults, helping the vaults scale faster, creating more liquidity, in a virtuous cycle, all to the benefit of YFI holders.
The last yearn “announcement”, on Sept. 17, was SyntheticRebaseDollar, an auto rebasing index that tracks the dollar value of the collateral that creates it. While Andre noted that “we are not yet sure what we want to do with this..”, the post highlightedbthe fact that when SyntheticRebaseDollar was created, it was a prototype part of another ecosystem that yearn’s working on. That ecosystem, called SyntheticTrader, is a permissionless USD settled leveraged long/short synthetic derivative protocol built on top of StableCredit. SyntheticTrader once again highlights StableCredit’s remarkable versatility, and yearn’s voracious ambitions.
IF StableCredit can efficiently execute on its plan, it will be a game changer, and a blackhole for liquidity. It’s implications are vast for DeFi today, and all of finance shortly.
Yearn Will Be Difficult To Effectively Fork
Assuming a cap at 30,000 YFI , yearn has moved past its inflation yield farming stage, which is the stage where projects are most at risk of harmful forking. Yearn is now in to the phase where users pay YFI holders for services.
Yet many still see Yearn as simply a play on defi composability and economics of scale regarding gas. And people think those elements are easily replicated. They’re wrong.
First, in order to effectively leverage DeFi’s composability, yearn has implemented a large and growing set of integrations that would need to be replicated. Early yearn forks still use yearn’s yCRV pool, which benefits yearn.
But I believe the strongest moat is yearn’s vibrant community that believes deeply in yearn’s mission to optimize asset returns by innovating at blazing speeds, via decentralized governance. It’s the most fairly distributed DeFi token to date, with the top five addresses owning less than 10% of outstanding tokens, vs. 20%-40% for other leading DeFi tokens. It has great memes:
Yearn has very active governance forums. It’s a great place to learn and get badges for doing so:
I’ll finish with the words of BlueKirby.eth, of learnyearn.finance
YFI is like volunteering for a spot on an expedition like the great European explorers or the first men in space. The danger, risk and rewards are all known before stepping on. Andre Cronje is our Ferdinand Magellan, but instead of circumnavigating the physical we will be the first to rebuild the financial.
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