It’s only been a few weeks since a new DeFi project came into fruition and the crypto world is going bananas about it.
Yearn Finance is all the rage this month and there’s a good reason for it. It’s a decentralised finance app that aggregates the yields of various DeFi lending protocols. Its native token YFI, is a governance token that lets users vote on network proposals. The more tokens they hold, the more influence.
It’s the gold-rush of this year and beats Chainlink, Band Protocol and every other DeFi project we’ve covered here on this blog.
Current price? $30 000 (US) or in other words, it’s worth 2.5 Bitcoin at the time of writing. At some point it went up to almost $40 000 (US), so the current price is in corrective mode.
Interested? Keep reading.
YFI is a governance token, meaning that holders can use it to vote on proposals for network upgrades. It can be earned by sticking your money in yEarn, a practice known as yield farming. But since its creation on July 17, the token’s taken off as a speculative asset. Its price has increased by more than 100,000% since its creation, when it was trading around $34 on some exchanges and only about 1000% since it was listed on Binance 20 days ago.
All of the major DeFi tokens have such governance tokens, which in July and August have become speculative assets. Aave’s LEND token, Curve’s CRV and Compound’s COMP, are all super-successful, but YFI’s raised a few eyebrows given its high price, which is now far higher than Bitcoin’s all-time high of $20,000 (from three years ago).
How is that possible you might ask? Well, for a start, there are only 30,000 YFI tokens (total supply) compared to the 21 000 000 total supply of Bitcoin (18 000 000 circulating supply). The confluence of a low and unique supply model, a transparent launch, and an active developer eventually led Yarn.Finance to evolve into one of the largest DeFi protocols (it’s now the second biggest DeFi project by marketcap).
The price of Bitcoin is up around 40% since the beginning of this year, which is impressive in its own right, but all that has been left in the dust by the gains made many DeFi project tokens— KSM (+4605%) BAND (+4286%) LEND (+1960%) LCX (+1371%) DEFI (+1239%) NMR (+889%) and of course, YFI (yearn.finance) which is up a few thousand per cent in just a little over a month and is currently worth more than 2 BTC as noted above.
The growth is crazy: on Friday morning, it was worth just $14,300, on Friday, the daily trading volume of the coin was $68 million. Now, with a price tag of $30,000, its trading volume is $515 million. Its marketcap: $883,565,776 (according to data by Token Metrics).
This price growth was not something planned by the YFI creator, however. Yearn.finance tokens were described as “completely valueless 0 supply token,” by its creator Andre Cronje who urged people not to buy it but rather – to earn it.
Now YFI is worth even more than Bitcoin, YFI is the ultimate crypto success story.
Before we get too carried away about this new token beating bitcoin in price, let’s take a step back to make sure we understand what yEarn (YFI) is.
- It’s a low-supply governance token that acts like an exchange traded fund (ETF) of sorts for DeFi investment opportunities.
- It’s a fund, not an individual token. Capped at 30,000 tokens, which is significantly lower than most other cryptocurrencies or tokens, the token automatically allocates your assets to DeFi investment opportunities that execute on Ethereum.
- As a governance token, its holders have a stake in deciding how its portfolio should be balanced, and like many other DeFi tokens.
- It can be farmed (earned) and it’s also traded on a number of exchanges, including Binance, Poloniex, OKex and FTX.
- As of August 25, it had an impressive US$789 million in value locked in, split between USD, ETH and BTC, according to DeFi Pulse. It trails just behind Synthetix, Aave, and Maker.
In short: yEarn.finance aggregates all the different yields of different DeFi protocols in one neat website. It also lets users invest in ‘vaults’, where people earn yields together. A yield refers to the interest earned by lending out your coins on various lending protocols. In addition to earning interest on your crypto, you can earn so-called governance tokens, like YFI—a kind of loyalty program for DeFi.
To help explain the function of yEarn in greater detail, I will refer to a facebook post by Alysseum Trading which puts things in perspective:
Most beginners hear about staking, yield farming, rewards & these highs APY (Annual % Yield) & think to themselves “this is all too hard”. In reality, if you take the time to learn how to send tokens from one address to another, you’re 90% of the way there!
The hard part comes from knowing what tokens to pick & where to put them to get the best return! This is where YFI & Yearn Finance comes in. Yearn Finance is a protocol that simply finds the best yield for whatever token you have, automatically.
All you have to do is deposit your coins into their system.
If I have some USDT stable coin, I deposit USDT, it will give me “y” tokens in return, ie yUSDT. Hence the name Yearn Finance, “yEarn” Finance. But this is only the beginning…
Token holders get to make decisions about what to do. The creator of the project took no tokens for himself. Supply actually started at 0 and the total supply of 30,000 coins could be “farmed” as rewards for using the system when it was launched to build liquidity & trust.
…if YFI had as many coins like Bitcoin, the price would be $50. People wouldn’t have their knickers in a knot. But the herd doesn’t understand simple concepts like a market cap. They are busy watching “best coins under $1” videos from Youtubers who also don’t understand the basics.
Another cool feature of this protocol is how the system automatically reallocates ALL coins of the same type in one transaction. If 1000 people have all deposited USDT to earn yield when the protocol moves them from Compound to Uniswap, usually they may expect to pay transaction costs of $100 in ETH Gas fees, as it is a complex smart contract, with many moving pieces.
yEarn groups them together, splits the cost (5% each) & does it in one Tx. Happy days!
Now comes the real kicker! Users pay 0.5% management fee when withdrawing. This goes to YFI token holders. Currently YFI has $1B in TVL (Total Value Locked).
the new product that has me excited & even more bullish on ETH, is yETH. This adds to a long list of catalysts for Ethereum, but it also reduces the available supply. Anyone who owns ETH can earn the best yield automatically by HODLing yETH.
The project’s developer, Andre Cronje, has collaborated with various top developers and executives in the cryptocurrency industry. On August 28, Cronje hinted at a collaborative project with Sam Bankman-Fried, the CEO of FTX, one of the largest derivatives exchanges in the cryptocurrency sector (as reported by Forbes Magazine).
Most recently, yEarn.finance announced the launch of yinsure.finance.
Yinsure will provide insurance coverage to DeFi users.
Speculating on the price, Arthur Hayes, chief executive of the cryptocurrency exchange BitMEX said via Twitter:
“One YFI [equals] $100,000,” – forecasting the yearn.finance price would continue to climb and hit $100,000.
Alex Kuptsikevich – a senior analyst at Fx Pro – explained in an interview:
The yearn finance coin has become the altcoin star, recently. In a month, it has shown twentyfold growth, living proof that ‘unicorns’ still exist, at least in crypto. The rapid growth of the coin also reflects the popularity of the decentralized financial sector. The creators of the project decided to follow the bitcoin path, limiting the issue of only 30,000 YFI coins. Such limited supply spurs rapid price growth.
The crypto market is currently going through a heavy correction after a four-month bull run, so it could be a good time to buy some of these on the dip.
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