Looking at Yearn through the eyes of a Seer

By Ceazor | Ceazor's Snack Sandwich | 4 Nov 2020

It's nearly a daily occurrence that I see people posting in the Yearn telegram channel, that "YFI is a scam," or that "YFI is going to zero." And to this, I feel I have some thought to contribute. 

By just looking at the chart.


I can understand why people might have harsh feelings toward their "investment."

But I must ask them why they bought the $YFI token, to begin with. It's a governance token with the central utility to allow for voting on proposals- that's it. Although it might be of great value to some, and to be totally honest, I hold $YFI tokens, at a loss, and do hope that the price will return to its all-time high, or even move beyond. 


The $YFI token is not what Yearn does. It's like ignoring Teslas cars, software, battery tech, solar power products, and focusing merely on the $TSLA ticker. Although this is not a completely fair comparison of an equity and a governance token, I think my point is clear.

In this video, I talk a lot more about how I look at tokens as investments if you are looking for more insight on that topic.

Yearn Finance's main products are the yield aggregating financial vaults. And a bet on Yearn, is a bet on the DAOs ability to innovate these products. In my opinion, newcomers should be directed to the vaults, and the actual $YFI token should be left to the contributors of the protocol.


Currently, all the publicly accessible vaults are all utilizing version 1 technology. Which in simple terms, without getting into all the gritty, are single strategy vaults that tend to farm a single token, sell it at market, and purchase the underlying asset that users have deposited in the vault. 

These vaults are humming away and producing respectable yields indeed, all with nearly zero risks. The only major risks are smart contract risks and hacks. 


(This is not a complete list of the vaults)

However, these in mind, have been forked quite a bit, and we can see similar vaults all over the ecosystem, even on the Binance Smart Chain (for example beefy.finance) 

But at Yearn, the developer team have been working to develop the V2 of the vaults. 

These new-age vaults will allow for multiple strategies to be implemented at the same time. Some of the first V2 designs are already live on mainnet for testing purposes.  


There are still substantial risks as they are not ready for the general public. 

That being said, I would like to highlight a few of the V2 vaults that are being worked on. 

CRV yVault (V2)

This vault asks users to deposit CRV into the vault. The vault then takes the CRV over to C.R.E.A.M finance and deposits it there to earn $CRV. 

This strategy might seem like child's play when compared to something like the 3Pool V1 vault strategy written about here. And seen in the image below.


(Current 3Pool Strategy at the time of writing)

But the purpose of this new V2 CRV vault is not to produce yield at this time, but to find issues for correction and it has yielded already on this front. 

DAI, ETH, and WBTC yVaults

These test vaults are trying out something quite special. They are providing the assets to Compound Finance as collateral, then using that collateral to borrow the same asset up to the maximum. They are then taking that borrowed asset and depositing it again as collateral to borrow against again. This is being done as many times as possibly safe, to harvest the $COMP rewards to sell at market for the original assest and depositing that yeild into the the vault to start the cycle again. 

Again, this strategy is in testing and is not risk-free, so it has not been release to the public. 


Uniswap Pool yVaults

These vaults are not uncommon vault strategies and can be found all around the ETH ecosystem. To name a few, Pickle Finance, Alpha Homora, VALUE DeFi and Harvest all have vaults that are harvesting the $UNI token by providing liquidity to the appropriate liquidity pools (LP) on Uniswap (US). 

The main reason Yearn was not quick to jump at this opportunity is because of the inherent risk of impermanent loss (ImpLoss) that comes with providing liquidity to LPs. Yearn would not be able to tout the "you will never lose what you put in" guarantee if this exposed users to ImpLoss. However, the opportunity for learning is still there, and developers have been testing these strategies in order to learn from them so they can better design vaults in the future. 

This test vault has been taking US LPs, staking them on Pickle Finance, which automatically harvests UNI and sells them for $PICKLE (in the V1 vault style), then converts the $PICKLE into the underlying US LP to repeat. However, there is talk of testing out an alternative strategy that stakes the $PICKLE instead to earn $WETH rewards. 

Gabriel Hanes, illustrated this concept quite nicely in this tweet and can be seen here. 


Although Haines'  illustration kinda falls off at the end and doesn't show how the entire system is returned back to the original deposits, it still hints at the elegance of a multi-functional strategy. It also exaggerates the strategy to include the addition of a $PICKLE/WETH PICKLE Power LP inclusion, but this ImpLoss risk included as a joke by Bantg (one of lead Yearn developers). This is the beauty of V2 vaults. It would be entirely possible for the vault to do both selling $PICKLES for the underlying LP assets to start again at the top and to stake the $PICKLE for the $WETH rewards, in some ratio, all automated and adjusting so the highest yield can be achieved, and even to achieve PICKLE Power.


So these V2 vaults are not ready for public use, but they are in the works. And they are currently not really that complicated. Certainly, not worthy of a V2 tag, but they are being developed.

As mentioned in the introduction to the article. It is my opinion, that new and old investors should be focusing on the products of protocols, Yearn included, and not be looking for the next governance token that will gain them huge returns. 

So remember that Yearn is a yield aggregator and should be viewed as one. It's not a token protocol that is looking to provide a token that will replace the $BTCs and $ETHs of the crypto ecosystem.





How do you rate this article?



I'm Ceazor of Ceazor's Snack Sandwich and I love crypto

Ceazor's Snack Sandwich
Ceazor's Snack Sandwich

This blog is a collection of articles on DeFi and cryptos on both ETH and BSC. Most articles are also in video form and can be found on my channel here. https://www.youtube.com/channel/UC_o4_cOevPVYC5pXs9OOexg?

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.