Yearn Finance Vaults Explained
2 min read

Yearn Finance Vaults Explained

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.