What is Yearn Finance and what makes it the best yield farming protocol in town? Andre Cronje’s creation has progressed far in the world of decentralized finance and many believe that his ecosystem will flip most projects in DeFi. In this guide to Yearn Finance, we will show you why that is highly possible.
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Yearn Finance is a revolutionary DeFi vault and yield aggregator built to help you generate the best yield farming profits possible.
Built by Andre Cronje, the Satoshi Nakamoto of DeFi, Yearn is the first yield farming platform for the masses. It's meant to make farming accessible to everyone.
At its core, Yearn Finance automates yield farming strategies using two products: Earn and Vaults.
By depositing cryptocurrencies into Yearn products, you gain access to Yearn's bot-run methods for swapping funds between the highest-earning DeFi protocols such as Compound and AAVE.
Taking advantage of Yearn can be a highly profitable venture if you know where to start. This guide to using Yearn Finance will help you get the basics before setting on your way to using the platform yourself.
Yield farming in the DeFi world refers to using your crypto to earn more crypto by putting your holdings to work in DeFi protocols. Generally, yield farming involves lending your crypto assets on platforms like AAVE, Compound, and dYdX.
However, other protocols, like Curve Finance and SushiSwap, allow you to deposit your crypto to provide liquidity for token swaps. Providing liquidity earns fees generated by trading volume on the platform.
To maximize yield, you can take liquidity provider tokens generated when you deposit to Uniswap, Sushiswap, Curve, and Compound to other protocols, thus folding your assets in on themselves several times to create higher overall yields.
This process can get quite complex, expensive, and requires constant vigilance as yield percentages shift around between platforms. That's where Yearn Finance comes in handy.
With Yearn, DeFi yield strategies are created by the best in the industry before being fully automated by the platform. These robo-farming strategies are otherwise known as Yearn Vaults.
Yearn also offers a more simplified DeFi earning product simply titled Earn. Instead of using complex strategies mostly involving boosted Curve Finance APY, the Yearn Earn products shift deposits between crypto lending protocols as their APY rates shift.
The one-liner on Yearn Finance is Yearn simplifies yield farming by efficiently using your crypto deposits in real-time across the best liquidity pools.
Yearn vaults are yield-farming strategies created by DeFi veterans and deployed by Yearn bots.
What a Yearn vault does is take the vault's perpetually fluctuating initial, generate profits, then use those profits to increase the size of the vault's assets. This, in turn, grows the vault's overall yield, representing a yield-compounding feature on a large, socialized scale.
To use a Yearn Vault, head to Yearn.Finance, click invest, then head to vaults.
Once inside, you'll find a plethora of vault options, all running unique strategies for different cryptocurrency assets.
Select the vault that appeals to you (it must be one for which you already own the underlying asset), then click show.
Yearn will automatically recognize your balance of the selected asset, at which point you can decide how much to deposit, then click approve.
Metamask will ask you to approve Yearn for spending the specified asset, then (in a second transaction) you will need to sign off on the deposit transaction.
Once the transaction approves, your wallet will contain a Yearn token representing your stake in the vault (i.e., yveCRV). At this point, there's nothing left to do but let the vault work its magic and accumulate yields to your stake!
When you're ready to withdraw from the vault (including your rewards), the same menu where you deposited also allows you to withdraw a specified amount.
Be advised that Ethereum gas prices are high, making it quite expensive to withdraw from a Yearn Vault. The Vaults use complex gas-consuming strategies — therefore, to be profitable, you should leave your deposit alone for as long as possible before incurring a withdrawal fee.
While the Yearn Vaults offer stratospheric returns often as high as 40% APY, the Earn product offers more modest returns. However, what it lacks in stupendously high APY it makes up for in simplicity and lower ETH gas fees.
Like AAVE and Compound, Yearn's Earn product offers relatively safe yields for stablecoins and wrapped BTC. Where Earn differs is it farms your deposit out across multiple DeFi protocols to constantly harvest the best yields.
As a yield aggregator, Earn is Yearn's first and best-known product. By shifting your deposit across crypto lending protocols, Yearn Earn keeps your APY higher than it would be when permanently sitting on one platform.
To use Yearn Earn, select earn from the invest dropdown at Yearn.Finance, then select the stablecoin you want to deposit (or wBTC, if you have that).
There are three version options currently — v1, y.curve.fi, and busd.curve.fi. Each of these version options will give you a slightly different list of depositable assets; however, all of the action is happening on the Curve Finance protocol in the background.
When you deposit stablecoins to Yearn Earn, Yearn deposits them to boosted Curve pools, which are then in turn spread across Compound, AAVE, and other pools as APY increases or decreases in said pools.
So, after choosing the version and asset, you own, enter how much you want to deposit, then click earn.
Your Metamask wallet will pop up and ask you to confirm two transactions. One is a spend approval, and the second is for the deposit itself. Once finished, you'll see your available balance along with the current interest rate in the Yearn Earn dashboard.
Because the Earn deposits aren't as complex as Vault strategies, withdrawal fees are generally cheaper. That does not make them cheap — so, your best bet is to hold your deposits long-term to make the most of your profits.
Some of the Yearn Vaults require deposits made with pool tokens, such as yfDAI (Yearn DAI). On the other hand, perhaps you have pool tokens from deposits made on Curve, and want to grab liquidity you can use to deposit into a Yearn Vault.
That's where the Zap tool comes into play. With Zap, you can zap into and out of Curve stablecoin pools with the click of a button in either direction.
So far, Zap isn't offered in Yearn v2, but you can still find it under invest in Yearn v1.
When talking about DeFi protocols, hacks and security exploits are always part of the risk assessment one must do before depositing.
Thankfully, Yearn has begun working with DeFi insurance giant Nexus Mutual to offer Cover, a decentralized form of smart contract coverage that covers your vault deposit.
You can find Yearn Cover under the protect tab, enabling you to cover your vault deposit with ease, thereby providing you peace of mind.
Unlike other highly complex tokens, Yearn's YFI token is a very straightforward governance token. Holding the YFI tokens gives the holder voting rights, the ability to create proposals, and possible future benefits (such as value accrual) as future proposals see fit.
At the time of writing, one YFI token costs a whopping $32,000. Last year, YFI went as far as to outprice Bitcoin at one point, temporarily circulating as crypto’s highest-valued digital asset.
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