Yield Farming Part 3: The Key Growth Behind DeFi
Among many blockchain-based services, DeFi is the hot new trend in 2020. Although DeFi may seem relatively new, the first DeFi service was introduced by MakerDAO in 2017. It took almost three years since then for the current boom we are seeing, and yield farming is the singular driver of this explosive growth.
DeFi services adopt yield farming methods to secure funds within their service. Compound was the first to start the yield farming race, and Uniswap and others were quick to follow. In this article, we will dive into the history, as well as the issues, of yield farming.
Read our previous posts to learn more about the beginning of DeFi:
- The Rise of DeFi and the Blockchain Ecosystem
- Ethereum Transaction Fees Surge as DeFi Leads the Market
[DeFi Yield Farming Series]
- The Beginning of Yield Farming
- Start of Yield Farming in DeFi
- Token Worth more than Bitcoin?: Yearn.finance
A Token Worth more than Bitcoin?
Bitcoin has been the most expensive cryptocurrency. But recently, a token more expensive than Bitcoin appeared: YFI. YFI is the governance token for Yearn Finance. At the time of this writing (September 28th), YFI is $29,312, 2.7 times higher than Bitcoin.
Just like other DeFi services we discussed previously, Yearn.finance gave its native token to the liquidity providers. (Check out DeFi Yield Farming Series 2 for more information on Yield Farming mechanism). The key difference with other tokens is that Andre Cronje, the founder of the Yearn Finance, said YFI is “a completely valueless 0 supply token,” with “0 financial value.” However, when YFI was listed on several exchanges, including Uniswap and other exchanges, the price of YFI skyrocketed. In this post, we will discuss the background and features of Yearn Finance.
DeFi Farmers Armed with Technology
As yield farming became popular, people began to search for DeFi services with the highest interest rates. Whenever they found a service with high returns, it was flooded with funds and the TVL soared, if just for a moment. But to gain profits like this, users had to manually handle the process of comparing, depositing, and borrowing across multiple different platforms.
To alleviate this burden, Andre Cronje created Yearn Finance, a service that identifies high APY strategies among several DeFi services and automates the yield farming process. With yield farming made easier, people started to flock to Yearn Finance.
Yearn Finance is a yield aggregator platform that strategically leverages other DeFi services to find the highest APY for the users. Its main goal is to maximize profits for the users by allocating their assets to services with the highest APY. Currently, Yearn Finance has four services: Vault, Earn, Zap, and Cover. In this post, we will take a closer look at the Vault system.
Vault is a smart contract that manages deposits and withdrawal of digital assets. Users can deposit one of the assets in the list below, and Yearn Finance will provide a strategy to maximize the profit for that asset. Every Vault has its own smart contracts to maximize profits for that specific asset.
Let’s take the ETH Vault as an example. The current strategy is StrategyMKRVaultDAIDelegate.sol’. When a user deposits ETH in the ETH Vault, it executes yield farming to profit in DAI, which is connected to the lending services of MakerDAO and Curve, and then converts the profits into ETH. Users can simply profit by depositing their assets into Yearn Finance, and Yearn Finance will automatically conduct all the processes to get the highest APY.
End of DeFi Series Journey
Yearn Finance created a new service in DeFi market that interacts among other DeFi services through smart contracts. Its innovative features and promise of big profits caused YFI to be worth more than Bitcoin. Bear in mind, however, just as its founder said, YFI token has no financial value.
With Yearn Finance, our Yield Farming series is come to an end. We will be back with more posts to demystify the concepts and issues in DeFi and lower the barrier to entry for all.
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