Yearn Finance is a yield aggregator that allows users to deposit their assets into Vaults, which generate profit by being deployed across several protocols in the DeFi ecosystem
YFI's main utility is that of a governance token, giving voting rights to YFI holders over governance proposals. A further breakdown of the governance rights is the following: Submission and voting on Yearn Improvement Proposals (YIPs), which govern the protocol and define changes to its tokenomics Voting on how to allocate fees that are collected by Yearn Finance on yVaults through different veYFI gauge weights. The gauge weights essentially determine yield distributions Voting to authorize treasury spending and YFI buybacks via the BABY program Setting of yVaults parameters, such as minimum deposit thresholds In addition to governance, YFI is also used to earn boosted rewards via its locking in veYFI. It is important to specify that both governance power and yield rewards are proportional to veYFI lock size and duration.
Governance - YFI token holders: general users want to hold YFI due to the governance rights that are associated with the token, through its locking mechanism into veYFI. As longer and bigger veYFI locks give more governance power, demand for YFI is expected to increase. Since proposals can change financial parameters such as reward structures and fees distribution, users would ultimately want to acquire and hold the token to participate in governance and capture value from protocol earnings. Yield Maximization: - users that have deposited in yVaults want to maximize their yields on deposits by acquiring more YFI to lock in veYFI for boosted gauge rewards.
The yVaults are effectively Yearn’s primary value creation product, allowing users to earn optimized yield simply by depositing their assets in the protocol. Value is captured by the protocol via the collection of fees, which are Yearn’s primary revenue source. These fees contribute to Yearn’s treasury growth and are reinvested in work being done by core contributors to improve the protocol.
Value accrual to protocol: Value is captured by the protocol via the collection of fees, which are Yearn’s primary revenue source. These fees contribute to Yearn’s treasury growth and are reinvested in work being done by core contributors to improve the protocol. Value accrual to Token Value is also accrued to the token, in terms of price increase, via the BABY program, which effectively buys $YFI on open market. These buys create positive buy pressure from the protocol itself, sustaining $YFI price.
Yearn Finance business model is centered around charging fees. Revenue comes from: - Management fee, which is paid for utilizing the services offered by Yearn finance, which are maintained by the protocol and its community - Performance fees, which is a fee that gets dedicated from the profit obtained via yield strategies that the users invest in Revenue is denominated in: The revenue accrued by the protocol as fees from yVaults is denominated in the underlying asset being deposited in the vault, such as ETH, USDC, DAI etc. Revenue goes to: The fees being collected are then primarily directed to Yearn’s treasury, which employs it for various uses. The most important of these uses, after the passing of YPI-56, is to employ a portion of these fees to buy back YFI tokens through the BABY program. The remaining treasury funds are used for development costs, operating expenses and for retaining a liquidity buffer that is required to navigate periods of market uncertainty.
|Problems & Solutions
Problem: Yearn Finance aims to solve the problem of the lack of optimal yield aggregation across DeFi Solution: It does this by providing automated yield farming strategies through its yVaults.
The main competitor of Yearn Finance is Beefy Finance and Convex Finance
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veYFI holders, which are also YFI holders, are a special class of Yearn users which engage in active protocol governance by expressing their voting rights in governance proposals. This class of participants tends to be more aligned with the protocol mission when compared to general users, since they have “skin in the game” in the form of locked YFI, thus are incentivized to perform actions that benefit the protocol as a whole and have a positive impact on YFI price.
the protocol itself is indeed an ecosystem participant, as the Yearn Treasury performs active asset management, deploying assets in other protocols to maximize yield, and performing buybacks as part of Yearn’s Buyback And Build Yearn (BABY) program.
Yearn Users are general kind of participants which are looking to maximize the yield on their crypto assets via Yearn. This class of participants is motivated by monetary incentives and mainly engages with the protocol through the Yearn Vaults, where they deposit asset to receive yvTokens