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Newsletter #6

Latest newsletter takes a look at various different DeFi protocols, perfect for sharing with your less informed friends. Have you enjoyed our content so far? Want us to cover a platform or protocol? Let us know!

What is DFI Money? YFII Token Review

DFI Money or YFII is a DeFi protocol that aims to facilitate yield farming through the use of automated strategies. It is a fork of the very popular Yearn Finance protocol with YFI token. The main difference is YFII implements a token halving model. Which aims to keep the token distribution fair and stop whales farming all the rewards. However, many have simply labeled DFI Money as the Chinese clone of Yearn. This is because they have a major following on WeChat.

Why was YFII born?

As discussed in our Yearn Finance review, the protocol allows users to deposit their assets and automatically find the best yield farming strategies. It makes use of popular DeFi products such as Curve or Aave. The platform created a governance token called YFI which is distributed to liquidity providers by issuing 30,000 YFI tokens per week. Much like how Kimchi Finance rewards users with KIMCHI tokens.

To prevent inflation, a proposal was put forth to initiate a weekly halving of the issued YFI tokens. However, the proposal failed to pass. As a result, an anonymous team decided to hard fork the project creating YFII where they implemented the changes.

Zoom in: this economic design change encourages people to participate in mining YFII, while still allowing latecomers to earn rewards. The fork is seen as controversial by some of the community, with Balancer removing the YFII-DAI pool even though it had $20M liquidity in it.
  • Binance listed YFII for free on 1st September given how popular the token is for DeFi farmers and enthusiasts.
Zoom out: DFI Money is here to stay in the decentralized finance sector. Recently, the community passed a proposal to attract collaboration with other teams by using YFII as a seed token. Essentially, 5% of the protocol’s rewards will go to a new pool to create a $1 million rewards pool.

What is Curve finance and CRV?

Curve Finance is a decentralized exchange designed to provide the best possible rates when trading stablecoins. Curve uses liquidity pools much like Bancor or Mooniswap, to make the trading as efficient as possible. As with most decentralized finance (DeFi) projects, the platform also has its native governance token CRV. Below we will take a quick look at what Curve finance is, and how it has launched the CRV DAO governance wars.

How is Curve finance different?

Since Curve focuses on stablecoins trades, liquidity providers have a much lower risk because the asset is not volatile. As a result, Curve has gained a lot of traction with large institutions. Such as, Coinbase who want to ensure USDC liquidity for DeFi protocols. For example, we find the protocol’s liquidity pools integrated with Aave, Compound, Yearn Finance, and DFI Money. More recently, support for Wrapped Bitcoin implementation was added. Which has opened up even more integrations and partnerships, with teams such as REN, WBTC, and SNX.

What about this CRV token… the native token is distributed as a reward for liquidity providers, it is used for voting on platform governance. However, CRV distribution is vested which helps ensure CRV is not immediately dumped on the market. There are also rewards for locking up your CRV which resembles staking. Essentially, there are design choices to help the token price go up.

This is unlike DeFi protocols such as SushiSwap or Kimchi Finance which are seen as more risky, where the tokens distribution appears to be a never-ending flood onto the market.
  • CRV distribution has led to what is called the Curve DAO Governance wars. This is where holders are continuously trying to make sure their preferred pools offer the highest level of CRV rewards. Which creates buying pressure!
What a funny looking UI… if you have never used the DeFi protocol before, you may be in for a shock. Though veteran computer programmers may find it a blast from the past. It is not the easiest UI to navigate and requires some getting used to, which could threaten further adoption.

Kimchi DeFi is Looking Delicious?

Another food inspired DeFi protocol locked up half a billion in value just hours after launch. No we are not talking about SushiSwap or Yam, this is Kimchi Finance. As you may have expected, users can provide liquidity to earn KIMCHI tokens as rewards.

Another fork of a fork of a fork?

KIMCHI token is a fork of Yuno and Sushi, essentially aiming to be an improved version of Uniswap. The new Kimchi DeFi farming token was able to lock up $500M in value from staking, before quickly tumbling down to $150M. This appears to be a new pattern that mirrors other DeFi projects, which really resembles a token pump and dump. Initial launch attracts a horde of hungry DeFi farmers who surge the token’s price up, only to dump their rewards. Yam was the most notably, flying past $150, to only crash down to $0 in just 48 hours.

So can I make money… The protocol allows you to farm KIMCHI tokens by providing Uniswap liquidity tokens (ETH, SUSHI, TEND, or USDT). Apparently, you can earn up to 66,000 APY. Of course, be warned the protocols smart contracts have not been audited.
  • The project has also launched gKIMCHI Token, which they have announced as an upgrade. It appears the new token adds features to reduce the rewards on a weekly basis.
So will this protocol launch… Kimchi Finance doesn’t really help its case by stating "KIMCHI could be the next hot DeFi farming token. Who knows?!" on its website. It seems that right now the appeal for DeFi users is to move from one farming protocol to the next, following the hype and earning rewards. The problem is for Kimchi Finance to be a success, they need liquidity providers to stick around.

Yearn Finance Vaults Explained

Excitement over Yearn Finance’s new yETH vault caused a flurry of bullish comments around crypto twitter. Many pointed out that the product release could ignite buying pressure and trigger a rally on the ETH markets. Essentially, users can deposit ETH and the protocol will find the highest yielding decentralized finance (DeFi) strategy for their funds.

What are Yearn Finance vaults?

Vaults seek the best returns for yield farmers, removing all the hours of research to maximize the profitability of yield farming. With the bonus of pooling funds to save money on gas fees also. Each vault follows a unique strategy to maximize the yield of the deposited asset. You could compare it to a form of automatic money management. Another reason why Yearn Finance has become so popular is that these vaults are designed for depositing one asset. Whereas, to earn rewards on protocols such as Mooniswap you need to pool two assets.

Making Yield Farming Inclusive

Andre Cronje, Yearn’s creator, has stated his main reason for creating the protocol was to make DeFi farming accessible to everyone. Sure, if you regularly use DeFi protocols then yield farming would not have seemed so complicated. However, you have to factor in gas costs. For a small investor with limited funds, the cost of doing business on Ethereum is just too high. To the point, that yield farming with less than $10,000 is a waste due to the high fees.

Yearn solves this problem for small investors by pooling their funds together to become one super investor. While many of the strategies are built around stablecoins on Curve, Cronje is working on new designs for other assets such as SNX, KNC, or AAVE.

Is this risk-free?

No, much like using any financial product in cryptocurrency, there are always risks. Yearn is no exception to that rule and indicates it heavily on their website. Many of the strategies to earn resolve around using lending protocols such as Maker DAO, which means assets may not always be available if you do want to withdraw. There are the general risks of smart contract coding bugs and also the key man risk. For example, an article spreading FUD that Cronje was leaving the project caused the protocol’s native token YFI to flash crash.
  • The YFI governance tokens allows holders to vote on protocols proposals. It was distributed to users of the protocol, in a launch that is considered to be the fairest since Bitcoin was created.
Looking to the future… if DeFi is ever going to be ready for the masses, it needs to be affordable for everyone. Yearn Finance is taking the steps in this direction, allowing smaller portfolios to try out DeFi investing. Of course, investors with access to more capital can make more money than the smaller fish. That is just how the world turns, but we can’t claim to be decentralized if there is not an opportunity to profit accessible to all.

Also take note

  • Burger Money: American yield farmers may want to consider their homeland food, a new DeFi protocol which has locked up $2M in liquidity already.
  • Beware: Another fork of SushiSwap called Shroom Finance, may have a backdoor allowing the creator to mint unlimited tokens.
  • Aave: partnership with RealT Market as Aave moves to bring mortgages onto Ethereum.
  • Swipe Wallet: Swipe has been listed on Upbit, with SXP/KRW pairs open immediately for trading. And SXP is also listed on Serum DEX.

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