Yearn Finance (YFI): The Leading Automated Crypto Investment Manager

19 February, 2023
The booming DeFi industry has opened up opportunities to put your crypto funds to use and earn returns from the vast variety of liquidity pools, staking protocols, and other sources. The variety has grown so large that finding the best deals is no longer trivial even for experienced crypto traders, let alone those who are less proficient in the intricacies of the cryptocurrency market. This is where DeFi yield aggregation protocols might be of immense value.

Yield aggregation protocols are DeFi apps that help you automate your crypto investment management and earn returns in a hands-off way. These protocols manage your crypto funds by allocating them to the best crypto sources to optimise returns. The undisputed leader among these platforms is Yearn Finance (YFI) — the focus of our article today.
What Is Yearn Finance (YFI)?

Yearn Finance (YFI) is a yield aggregator platform that manages your crypto funds by investing them in liquidity pools across a variety of DeFi protocols. Yearn Finance seeks to optimise yields via a number of dynamically used allocation strategies.

Some of the key DeFi platforms that Yearn Finance invests in include Curve Finance (CRV), a leading decentralized exchange (DEX) specialising in stablecoins; AAVE (AAVE), one of the largest lending and borrowing protocols; Maker (MKR), another leading lending and borrowing platform; and Convex Finance (CVX), a yield boosting protocol.
Yearn Finance users deposit their funds into so-called vaults on the platform. Being a decentralized smart-contract protocol, Yearn Finance manages all the deposits, fund allocations, and payouts automatically via its smart contracts. Each vault has its own smart contract address on Ethereum for users to send crypto funds to.

Vaults may use various strategies to maximise yield. In the first version of Yearn Finance, each vault was limited to only one strategy. After major upgrades to the protocol, vaults can now support many strategies, diversifying the earnings optimization potential per vault.

Users pay two types of fees for using the vaults. There is a 10% performance fee, which is deducted from the returns generated by the vault. There is also a management fee of 2% per year.
Yearn Finance is a useful tool for crypto traders who are looking for ways to optimise their investments and reduce the time spent searching for profitable liquidity pools and other crypto income sources. The protocol has grown to become the largest DeFi yield aggregator by total value locked (TVL).

As of today, Yearn Finance has a TVL of nearly half a billion USD, confidently ahead of the second-largest yield aggregating platform, Beefy Finance (BIFI), and vastly ahead of other yield aggregators.

The top 5 yield aggregating DeFi protocols by Total Value Locked
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YFI — The Cryptocurrency of Yearn Finance
The platform’s native cryptocurrency, YFI, is used primarily for on-platform governance. In order to participate in the platform’s governance, YFI holders must stake/lock their funds on the platform, i.e., simply holding YFI tokens does not grant you governance rights. Participation in the platform’s governance allows you to cast votes on any major changes and upgrades to the protocol’s rules.

YFI is a supply-capped token. It has a maximum supply limit of just 36,666 tokens. Compared to the vast majority of other cryptocurrencies, YFI’s supply ceiling is very low, which ensures that the token’s unit price is typically in the thousands (currently slightly under $ 7,400).
History of Yearn Finance and the Sudden Departure of the Founder
Yearn Finance was launched in July 2020 on the Ethereum blockchain. The project’s founder is South African blockchain entrepreneur Andre Cronje. Cronje is well-known in the world of blockchain as a key person behind a number of projects. Cronje’s standing as a leading DeFi figure supported much of the platform’s early success.

The platform’s second version, launched in early 2021, included a number of significant improvements, of which the key one was the introduction of multiple strategies per vault. In September 2021, Yearn Finance announced the introduction of the protocol’s third version.

In March 2022, Cronje announced his retirement from all his DeFi projects, including Yearn Finance. However, since Yearn Finance is a decentralized blockchain-based app, Cronje’s departure didn’t mean that the platform stopped operating. It continued functioning, supported by its user activity and the underlying Ethereum blockchain.

This is perhaps one of the best examples of how blockchain-based decentralization works — key people might come and go but the underlying decentralized protocol can operate unimpeded.

In fact, not only did Yearn Finance continue to function after Cronje’s departure, but the platform has confidently retained its leadership position among DeFi yield aggregators.
Commodity pools, while not without their disadvantages, could be a great choice for commodity traders of all sizes. The ability to leverage the collective power of a pooled investment might be crucial for smaller traders, while still being a useful bonus for larger traders as well. If you are serious about commodity trading, considering these pools should never be off the table.