Finance

Yearn.finance (YFI): What Is It And How Does It Work?

What Is It And How Does It Work

Yearn.finance is known as a suite of products within decentralized finance (Decentralized Finance) that provides credit collection, yield generation and insurance on the Ethereum blockchain. The protocol is maintained by various independent developers and is managed by YFI owners. In this post, we will take a look at Yearn.finance’s core products, its management process and other important things. Let’s get started.

Yearn.finance (YFI): All You Need To Know

What is Yearn.finance (YFI)?

Yearn.finance is an aggregation service for Decentralized Finance investors that uses automation to enable them to maximize profits from yield farming.

Yearn.finance’s goal is to simplify the ever-expanding DeFi (Decetralized Finance) space for investors who are not technically minded or want to interact with less committed than serious sellers. Launched in February 2020, the service formerly known as iEarn has seen massive growth in recent months as new products are launched and developers are launching the in-house token YFI.

Who founded Yearn.finance (YFI)?

Yearn.finance is known as the invention of Andre Cronje. After leaving the iEarn project in February 2020, Cronje has returned to demonstrate a rebirth, with new vehicles emerging and YFI going live in July. Since then, YFI capital has reversed and locked-in total undervalued assets have risen to just over $1 billion by the end of September 2020. Cronje has a long career in cryptocurrency and has become synonymous with DeFi (Decentralized Finance) in particular. He also holds positions on smart contract ecosystem Fantom and CryptoBriefing, a resource dedicated to initial coin offerings (ICOs) and crypto media.

What is the management format of Yearn.finance (YFI)?

The Yearn.finance ecosystem is controlled by YFI token holders who submit and vote for off-chain offers that manage the ecosystem. Proposals with majority support (over 50% votes) are implemented by nine members with multi-signature wallets. In order for the changes to be implemented, six of the members who have signed nine wallets are signed. Members of the multi-signature wallet are voted on by YFI holders and can be changed from future management votes. 

What secures the Yearn.finance network?

Yearn.finance users may face a high risk of losing money due to rapidly changing market conditions and opportunistic organizations trying to profit from less experienced participants. Its founder, Cronje, also tried to maintain transparency about the origin of the platform and stated that even after code audits, Yearn.finance cannot be guaranteed to be 100% secure, in other words, DeFi (Decentralized Finance) involves inherent risk.

What is special about Yearn.finance?

Yearn.finance is working to simplify DeFi (Decentralized Finance) investment and activities such as yield farming for the broader investor sector. The platform acts as an aggregator for DeFi protocols such as Curve, Component and Aave and leverages a variety of bespoke tools, bringing the highest possible yield to cryptocurrency holders. New features continue to roll out aimed at helping preserve the long-term value of the platform, among other factors. Joining forces with algo affiliates will help your brand hold long term value as well.

Yearn.finance is making a profit at the end of September 2020 by charging a 5% gas (gas) subsidy fee along with withdrawal fees which are currently 0.5%. Due to the management model, these can be changed at any time by technical consensus. The target market for Yearn.finance is known as investors who do not have time to study the increasingly complex DeFi phenomenon from scratch or who want to optimize their returns.

What is the YFI token?

The YFI token is used as a tool to establish coordination between Yearn.finance contributors, the community and related protocols. The management and development of yearn’s products was created to be decentralized while providing an environment for fast-paced innovation.

Evolution of YFI

YFI is concerned with the responsibilities of token holders and how the token itself is dynamically earning as a token on Yearn.finance. All its functions can be changed by the community at any time, and there are many examples of this. Since the emergence of YFI, there has been extensive discussion about the emissions, supply and entitlements of token holders.

Distribution

When the YFI token contract is deployed, users of various DeFi (Decentralized Finance) protocols can acquire it by providing liquidity to specific pools. Curve Finance yPool was rewarded with 30,000 tokens in proportion to the liquidity providers of the YFI/DAI balancer pool and the YFI/yPool LP token balancer pool. Output tokens from investing in these pools were staked through a discontinued Yearn.finance interface, and stakers were rewarded within YFI for approximately seven days until the supply was depleted.

Cessation of Emissions

YFI is designed with a built-in mintage function. Initially, this functionality was controlled only by Andre Cronje, but shortly after token emissions began, it evolved into a multi-signature wallet. Since the aim behind the YFI is to make control completely decentralized, no concrete plans for emissions have been established after the first 30,000 YFIs have been deployed. YIP-1 (Yearn Improvement Proposal) approved the weekly distribution of YFI, but required a second decision on how to implement and distribute this proposal, but this decision did not materialize.

Progressive Elimination of YFI Staking Income

Beginning with YIP-36, some of the stake rewards have been diverted to the multisig wallet to fund operational expenses. Rewards are distributed to token holders when the Multisig wallet has a buffer of $500,000. YIP-56, on the other hand, has completely deployed the staking system and uses the buyback system. This has benefited token holders by removing YFI from the open market, while channeling more capital into the Yearn.finance treasury. With this, the YFI (Governance Vault) management vault was retired and its owners were allowed to participate in management while keeping the YFI elsewhere.

YFI Minting (Mass Production)

YFI holders voted to mint 6,666 YFIs. One-third of the newly issued YFI was given to key contributors, and two-thirds of the newly minted YFI was sent to the treasury to be distributed and controlled by the management. After YIP-57 passed, all tokens were minted in a single day.

Authorizations Defined in Administration

As announced in YIP-61, Governance 2.0 has expanded the YFI token holder’s responsibilities from creating and voting Yearn Improvement Proposals to creating and voting Yearn Delegation Proposals and Annual Signaling Proposals.

YSPs (Yearn Signaling Proposals)

These allow token holders to formally request that a yTeam execute a decision over which they have authority. This allows token holders to have a say while avoiding a protracted YIP process. yTeams have the choice whether to respect the suggestion and if they do not choose, this can become an issue as an official YIP.

YDP (Yearn Delegation Proposals) 

These are suggestions that change in cases where the decision-making authority to create any discrimination is delegated. This is relevant to Governance 2.0 as it introduces targeted yTeams and certain entitlements that can be changed by token holders.

Yearn.finance management and operations

Due to the fact that YIP-61 Management 2.0 took place on April 25, 2021, Yearn.finance has moved to a multi-DAO (Decentralized Autonomous Organizations) structure managed by restricted authorization. This approach allows protocol development to be burdened by bureaucracy while maintaining adequate decentralization.

What is Multi-DAO?

It refers to the fluent number of decentralized independent organizations (such as Decentralized Autonomous Organizations, DAO) that uniquely contribute to the protocol. These independent groups consist of YFI owners, yTeams, and Multisig.

YFI holders vote for changes in the protocol or protocol management structure. yTeams focus on specific aspects of the protocol or related operations. Multisig members implement or veto decisions regarding the chain.

A simplified form of management is as follows:

YFI owners can create or change the boundaries of yTeams,

yTeam notifies yTx of any decision,

yTx creates a delegated transaction and sends it to Multisig,

Multisig can execute or veto the transaction.

Token Holders

It is the responsibility of the YFI token holder to create and vote on proposals that improve the protocol. These offers are:

Improvement Proposal (Yearn Improvement Proposal)

As a proposal to execute on any authority transferred to YFI holders or outside the scope of the enumerated powers,

Yearn Delegation Proposal

As a proposal to change the place where the decision-making authority leading to any discrimination is transferred,

Yearn Signaling Proposal

It is known as a non-binding proposal to express community sentiment or intent on any topic.

Specifically, these offerings allow token holders to make the following decisions:

Managing Powers

YFI holders can vote to create, assign or revoke powers separate from or to yTeams.

Exchange of YFI Token Contract Any interaction with YFI token contract, such as issuing YFI or burning issuance keys, remains under the control of YFI holders.

Determining Fees Standard fee structures can be determined in the Yearn.finance protocol.

Changing Multisig Signers Only YFI holders can vote to replace signers as Multisig will continue to retain critical powers in the near term.

Changing yOps Signers

This is a special power to change the signers of yOps, as yOps has the power to change the signers of other yTeams. Apart from this, options such as spending treasury funds or spending money from the treasury can be added to these decisions.

What is YIP (Yearn Improvement Proposal) Power?

YFI Holders are authorized to propose a YIP on any subject that has not already been transferred.

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