Why YFI is the Key to Unlocking the Full Potential of DeFi Protocols?

YFI is an ERC20 token used to govern protocols in the Yearn.finance ecosystem. YFI currency can be obtained by participating in these protocols. There is a maximum of 36,666 YFI tokens to offer and there is no ICO or other way to mine them. It is only possible to obtain YFI tokens by providing liquidity on one of the platforms of this ecosystem. Its last token entered the ecosystem on July 26, 2020.

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What is YFI?

As one of the most popular decentralized projects in the digital currency world, the Yearn.finance protocol aims to simplify defaults while providing the highest possible annual interest rate on their currency deposits. This digital currency, also known as the Bitcoin of DefI (Decentralized Finance), has already gained a lot of fans and many users are trying to get a share of it. Note, however, that the first version of this ecosystem (V1) is still in beta; yet the next version (V2) can be used easily and safely.

Yearn.finance is an ecosystem of protocols built on Ethereum that aims to simplify user interaction with popular DeFi protocols and maximize the annual profit percentage (APY) of digital currencies deposited in DeFI. This protocol allows users to optimize their yield farming results by combining different platforms.

This ecosystem, formerly known as iEarn or yEarn, was created by a programmer named Andre Cronje. Cronje realized that the use of yield farming was very complex and predicted that this complexity would get worse over time. It became more and more difficult to assess whether they were really making a profit as more people wanted to use different lending platforms to make more money. In response, Cronje knew it had to provide a new product that would make the process easier and allow anyone to see the results of using yield farming instead of manually choosing between platforms.

Cronje also aims to make Yearn.finance (YFI) the most secure defense protocol available to users. He had announced that he would be the first to put his budget in it and the last person to withdraw his budget. He has not received any money from others for this project and unlike other projects, he has not saved any tokens for himself when distributing the tokens.

Of course, after a while, Andre Cronje left the Irene Finance project and moved on to other projects.

What are the main features of YFI?

YFI’s main feature is called Vaults. It allows clients to deposit cryptocurrency and earn yields. The deposited funds are managed by a strategy that tries to maximize yields and minimize risk. While launched, Vaults were focused particularly on stablecoins, yet they have since expanded to support ether, tokenized Bitcoin products, Chainlink, and other crypto coins. 

Vaults can mitigate the high cost of transacting on Ethereum By pooling capital. Only one account (the controller of each Vault) has to pay transaction fees (gas fees) to yield farm.

Yearn.finance offers other services as well. Earn is a slimmed-down version of Vaults which merely supports stablecoins and tokenized bitcoin. Zap allows users to swap traditional stablecoins for liquidity provider tokens representing stablecoins.

Yearn.finance is currently working on other products such as yInsure, a decentralized insurance protocol for DeFi users, and StableCredit, which will facilitate decentralized lending and borrowing.

How does Yearn.finance work?

It can be said that the complexity of understanding how Yearn.finance works are due to the lack of documents available about this protocol. Of course, how it works compared to other DeFi projects is very understandable.

This protocol switches them between Compound Aave and DyDx, depending on which pool of stable coin assets produces the highest APY. Yearn.finance currently supports stable stocks of DAI, USDC, USDT, TUSD, and SUSD. Since the project is managed by its community, the lending protocols between it and the list of supported cryptocurrencies may change over time.

When a stable coin user deposits in yearn.finance, that token becomes the equivalent of a Y token (for example, DAI becomes yDAI). This new token is known as the “optimal yield token” and can be used to earn YFI tokens. Yearn.finance takes the main budget deposited into the protocol and automatically shifts it among the highest-yield, Comp, Ave, and DyDx pools. The protocol also charges a small fee to enter its pools and make it available only to holders of Yearn.finance digital currency, the YFI token.

In Conclusion

The introduction of the YFI digital currency marked a major shift in the way project coins were distributed throughout the cryptocurrency industry. By motivating early users, projects can achieve rapid acceptance and community growth. This approach is something like the concept of “skin in the game”, according to which those who have a monetary or emotional share in an investment, do everything for its success.

The YFI currency is the governance token of the platform, which allows its holders to vote on Yearn.finance proposals and promotions, indicating that all decisions of this protocol are the responsibility of its community.