Author: Nick Chong

Abstract

YFI is Yearn. The native cryptocurrency of the finance protocol. This is a governance token that allows users to vote on the direction of the protocol.

Because the main protocol focuses on automated liquidity mining strategies, YFI has gradually grown into one of the largest tokens in Ethereum since its launch in July. In a sense, you can think of Yearn.finance as a bot that is constantly searching for the best yields in Ethereum DeFi.

Introduction

As the yields offered by protocols skyrocket, decentralized finance (more commonly known as It is "DeFi") showing parabolic growth. An important force driving this growth is the introduction of governance tokens, which allow holders to determine the direction of the protocol. Governance tokens are a critical step in decentralized DeFi protocols.

Riding on the trend of governance tokens, Yearn.finance launched YFI in July 2020. In just one month, its price rose from $3 to $30,000, quickly establishing itself in the cryptocurrency space.

What is Yearn.finance?

Before formally understanding YFI, it is necessary to have some background information about Yearn.finance (also known as "yEarn").

Yearn.finance was launched by Andre Cronje in early 2020 and is an Ethereum-based protocol. The main goal is to generate the highest yield for users’ deposited Ethereum, stablecoins, and altcoins. Andre Cronje is a South African financial technology developer who started creating Yearn.finance after noticing that the benefits provided by different DeFi applications were inconsistent.

Shortly after going online, the protocol was attacked. Subsequently, Cronje conducted a comprehensive overhaul of the protocol and provided users with a new set of products.

Key Features

The main feature of this protocol is called Gun Pool. Users can deposit cryptocurrencies into it and earn earnings. Deposited funds are managed through a strategy that strives to maximize returns while minimizing risk. At the beginning of its launch, Machine Gun Pool was mainly focused on stablecoins, and later gradually supported Ethereum, tokenized Bitcoin products, Chainlink and other currencies.

The machine gun pool is very important, it can reduce the high transaction costs of Ethereum. With this funding method, only one account (i.e. the controller of each machine gun pool) needs to pay transaction fees (gas fees) to perform liquidity mining.

Yearn.finance also offers other services. Earn is a streamlined version of Machine Gun Pool that only supports stablecoins and tokenized Bitcoins. Zap allows users to exchange traditional stablecoins for liquidity provider tokens that represent stablecoins.

Currently, Yearn.finance is developing other products, such as the decentralized insurance protocol yInsure for DeFi users and the lending service StableCredit that promotes decentralization >.

Get to know YFI

Before July, Yearn.finance had always been a fairly niche product. After the vulnerability attacks in early 2020 and the cryptocurrency market crash in March, many users were hesitant to use the then-new protocol.

When Cronje published a blog post on Medium announcing the launch of YFI, the situation changed: an ERC-20 token is about to be released, giving users the right to govern the Yearn.finance protocol.

YFI can be "mined" in a variety of ways, including providing liquidity to the decentralized trading platform Balancer and depositing funds into Yearn.finance's products.

Although posts in Medium believed that YFI had "no intrinsic value," the market began to buy heavily. After starting trading on the Balancer pool at $3, investors gradually realized the value of governance Yearn.finance. As a result, the cryptocurrency's value soared, quickly amassing tens of millions in deposits.

Shortly after launch, the community determined a maximum supply of 30,000 tokens, choosing to keep YFI scarce rather than expand further. Users dissatisfied with this decision forked the project, creating a fork now known as "DFI.money" or "YFII".

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Decentralized Yearn.finance

YFI attracted deposits and attention, promoting Development of Yearn.finance. However, the token also serves another purpose: devolving the development and control of the protocol to users.

The mining mechanism allows any user (whether they have 100 US dollars or 1 million US dollars) to earn YFI at the same cost at the same time. Therefore, every user can influence Yearn.finance by acquiring YFI.

Since the inception of YFI, a comprehensive governance portal has been launched where token holders can vote on various decisions proposed by community members.

Decisions made so far include hiring a team of marketers and developers and adding certain strategies to the pool.

The holders also made a key decision to provide YFI holders with part of the protocol profits. Fees earned from Yearn.finance products are credited to the treasury and subsequently distributed among YFI holders and the team. In this way, YFI becomes a dividend yield-producing asset, unlike Bitcoin or Ethereum.

Why YFI is important

Many people are paying attention to the price changes YFI has experienced, but the most important thing is What’s more, it marks a transformation in the way the protocol incentivizes token users. Some people believe that YFI is "the fairest token issued since Bitcoin" and anyone can participate in the generation of tokens while paying the same price.

Unlike the Initial Coin Offering (ICO) model, where users pay a certain price for each new coin, YFI users must personally participate in the protocol. This mechanism allows the community to quickly build around the project because all users have the same ability to influence Yearn.finance through the governance token.

Even after experiencing initial price fluctuations, Yearn.finance has still established one of the most active communities in the field of decentralized finance and the entire cryptocurrency market.

Challenges

YFI also faces challenges. Andre Cronje has been the mastermind behind Yearn.finance and YFI, and investors are closely watching his every move. If he chooses to take a leave of absence, many will think YFI takes a hit. As a result, some believe that the project remains centered around this key player, and at least to some extent it is.

At the beginning of this year, there were reports that Cronje expressed his desire to leave the DeFi field, which further highlighted this point. Concerns about the project being offline have caused the price of YFI to continue to fall.

As new members join the Yearn.finance team, this "Cronje premium" trend (as some traders call it) is gradually losing its meaning. If decentralized governance can continue to develop without Cronje's influence, all kinds of concerns and doubts will disappear.

Summary

The launch of YFI marks an industry-wide transformation in the token distribution method of cryptocurrency projects. . Various projects have established incentive mechanisms for early users, which can accelerate token application and community growth. This is in line with the concept of "skin in the game" (skin in the game), that is, investors who have invested money or emotional interests will do their best to promote the project's profitability.

Yearn.finance is an interesting protocol that is building unique decentralized financial products. They hired a team of developers and marketers, and the future seemed bright. However, we still have to wait and see whether this project can develop in the Ethereum DeFi field for a long time.