How Yearn Finance Works

Welcome to this post, where we are going to see how yearn finance, one of the main platforms for farming and staking cryptocurrencies on the ethereum network, works.

Yearn Finance brings together different financial products on its platform to maximize its profit and offer greater benefits and opportunities to its users. It has many different staking options with great returns, and more than 5 billion (US) dollars in its platform as total locked value.

What is Yearn Finance

Yearn Finance is a set of Decentralized Finance (DeFi) products offering loan aggregation, yield generation and insurance on the Ethereum blockchain. The protocol is maintained by several independent developers and is governed by YFI holders.

Yearn’s first product was a loan aggregator. Funds move between dYdX, AAVE and Compound automatically as interest rates change between these protocols. Users can deposit into these loan aggregator smart contracts through the Earn page. This product fully optimizes the interest accrual process so that end users are assured of getting the highest interest rates at all times between the platforms specified above.

Basically, yearn finance is a farming optimizer, whether in aspects of lending on protocols like AAVE, or staking options on protocols like Curve. It looks for the best return among the platforms it considers safe, and so you avoid having to move funds from one platform to another every time the interest decreases in one, or is higher in another. Besides doing auto compounding or compounding the rewards you receive in more tokens of the same vault, to maximize the profit you can get. By having a lot of liquidity, the price of the gas fee does not affect, and get higher returns than if done manually.

It is currently on the etheruem and fantom network recently. Although the most options in vaults and loans are found in etehreum. Still, you can find some interesting options on the fantom network, to maximize your profit.

It is important to consider that, if you want to use yearn finance on the ethereum network, the commissions are very high, so it is not recommended to use with a capital of less than $10,000 or more. Since you will be paying in commissions around $500 to deposit the funds and then withdraw them, until ethereum does not decrease the cost of commissions. With that said, let’s take a look at the main sections of yearn finance.

yVaults

In yvaults you will find Equity Vaults that automatically generate a return based on the opportunities present in the market. Vaults benefit users by socializing gas fee costs, automating the return generation and rebalancing process, and automatically shifting capital as opportunities arise. End users also do not need to have a deep understanding of the underlying protocols involved or DeFi, so the Vaults represent a passive investment strategy and no active action is required.

yVaults are like savings accounts for your cryptoassets. They accept your deposit and direct it through strategies that seek the highest return available in DeFi among different secure protocols.

You can start with any asset.

Thanks to the Zapper feature, it’s very easy to deposit into vaults. As long as you have a token that can be exchanged in Uniswap with less than 1% slippage, the vault will accept the token, convert it to what is required for the vault, and deposit everything in the same transaction.

Upon withdrawal, users will be able to zap back into one of the following tokens:

• ETH, WETH, DAI, USDT, USDC, WBTC.

In vaults, you can choose the vault you like and are interested in. Take into account the most relevant aspects, such as the annual %, which you can find in APY, and the type of asset you are going to place, whether it is a stablecoin or a cryptocurrency that fluctuates in price. In total assets, you will be able to see the amount deposited in each vault, with its value in $. If you are looking for a safer vault, usually those with more locked value are more stable.

If you click on the vault you are interested in, you can find more information about the protocol used to achieve that profitability and more information about it. To deposit, on the right side simply click on from wallet to vault, indicate the amount, click on approve if you have not approved the cryptocurrency, click on deposit, confirm in your wallet and that’s it. This way, you will have deposited the token in the vault, and you will be able to start receiving the % it shows.

If you don’t have the vault cryptocurrency, you can buy it in uniswap, or use the zap function to directly exchange your ethereum or other cryptocurrency to the vault and deposit it.

Iron Bank

The Iron Bank offers a lending service to both users and protocols. For protocols that are whitelisted it can be unsecured loans. For users, it will be a loan using collateral.

The reserve factor is the percentage of the fee paid to Iron Bank. If the reserve factor is 10, that would imply that 10% of the interest paid on the asset goes to Iron Bank.

On the other hand, the guarantee factor or collateral factor is the maximum you can borrow on a given asset, with respect to the collateral you have deposited.

Example: The collateral factor for ETH is 85%, if the price of ETH is considered as $1000, the maximum you can borrow on other assets is $850. It is also another way of farming by leaving your tokens to be borrowed with the profitability that you can see in lend APY. If you want to borrow, you will have to pay the interest that you can see in borrow APY, depending on the asset you borrow, this % will be higher or lower.

Earn

Earn is a lending aggregator that strives for the highest yield for supported currencies (DAI, USDC, USDT, TUSD, sUSD, or wBTC) at all times. To do so, it programmatically switches these coins between various lending protocols (AAVE, dYdX, and Compound) found on the Ethereum network.

For example, a user can deposit DAI into the Earn andDAI pool. Yearn will programmatically deposit DAI into one of the three lending protocols (AAVE, dYdX, Compound). Yearn will withdraw from one protocol and deposit into another automatically when interest rates change between protocols, thus maximizing profit. As a result, the user will receive the optimal interest rate for their DAI deposit at all times without the need to do it manually or incur high gas fee costs on the ethereum network.

Earn is a key component of Curve.Finance’s yPool, which represents a basket of four yTokens: yDai, yUSDC, yUSDT and yTUSD. The four underlying yTokens are constantly optimized for the highest interest available in the market, while serving as a liquidity pool for these tokens. Users can interact with this pool to swap between any of the four tokens with little slippage. Therefore, yPool liquidity providers receive optimized interest rates on their stablecoin deposits and trading fees from users who exchange tokens from the pool.

I hope it has helped you to learn more in detail how yearn finance works, one of the main farming and staking optimization protocols on the ethereum network. Remember that if you don’t have an account with binance, you can create one just below.