So, let’s start this explanation here, on Yearn.finance.
This is the pool I will be considering in the following. It is currently, yielding an APY of 16.32%, not bad at all.
But here we want to think about how this yield is being generated. Personally, I think it is important to have at least a rudimentary understanding of how yield is being produced so that one can better decide if they feel this particular strategy warrants their investment.
To illustrate the flow of assets, I will utilize the following flow chart.
This might look a bit scary, but it’s not so bad when we look at it in steps. So let us do that now.
So here we have an investor that has some combination of the three stable coins, $DAI, $USDT, and $USDC (for the remainder of this article I will remove the $prefix on coin names for ease of reading), and they wish to enter the Yearn Curve 3pool Vault
So what they need to do 1st is head over to curve.fi and deposit their stable coins in the 3pool liquidity pool on that platform. I will not display all those steps here, because I will later show you a workaround. But if you do not wish to utilize the workaround you can watch my video to see the steps to enter manually.
After you deposit your stablecoins in the curve 3pool you will be granted a 3Crv LP token. This is the token required to enter the Yearn 3pool Vault. And the token that will be increased in the vault via the strategy used.
Here is the workaround that I mentioned above. It requires that you take advantage of the great work they have done over at zapper.fi with making entering a number of investment opportunities simple and straightforward. I will describe the steps in text now, but if you want a visual I representation, I suggest you check my video (final plug)
- Head over to zapper.fi and search the top tabs for the INVEST tab
- Scroll down to Explore Opportunities
- Search for “yearn”
- Locate 3Pool Curve Vault and click add liquidity
- In the pull-down menu that should be currently displaying ETH, select the token you wish to spend to enter the vault.
- Input the amount you wish to deposit.
- Click confirm.
There are going to be a few transaction requests in your wallet (perhaps Metamask), and you will find yourself deposited in the Yearn Curve 3pool Vault.
Whichever method you used to enter the vault, either but the user-friendly Zapper.fi or via the manual curve.fi method. Your assets will essentially have traversed the same flow.
Having entered the vault, you will find yourself now the holder of a vault token called y3Crv.
This token is very important to your investment and you should consider very carefully before you swap this token or send it to anyone. Without this token in your wallet, you will have NO claim to the funds you placed, and have been incurring interest, in the vault.
So let’s now talk about yields, or how this pool is growing your investment. It does so in two ways. So let us start with the native curve.fi side of things.
This image shows that the traders on Curve Finance can trade with the 3pool in several ways, all of which will require them to pay a small fee, which is given to the people that hold the 3Crv token.
(the same token we have deposited in the vault and that is growing in number which I will explain later)
If curve.fi users trade with the 3pools liquidity pool (LP), perhaps by swapping USDT for USDC, or maybe DAI for USDC, they will pay the fees.
Additionally, if users swap to or from any of the metapools that all contain a single asset (seen below the Curve.finance user in the image) they are automatically interacting with the 3pool LP also, and the fees paid are shared with that specific coin pool and the 3pool LP providers. These transactions will all grow the value of the 3Crv LP token that we obtain above.
So, let us move on to the second way the Yearn Vault is providing yield to users in a multifaceted automated process.
This image shows the first phase of the vault's inner workings. The vault takes all the deposited 3Crv tokens and stakes them in the Curve Governance Gauge (CGG) in order to accumulate crv token rewards. The vault will ensure that there are enough crv rewards to warrant the costs (currently at least 1000) and at least 24 hours have surpassed since the last claim
Having harvested these crv rewards, the vault moves on to the next step as seen here.
The harvest is split into a 90/10 percent split with the largest portion taken to Uniswap and the smaller portion taken back to curve.fi for staking in the Curve Booster. This process will produce veCrv tokens, and for simplicity's sake, we will say they simply boost the number of crv rewards given for staking 3Crv tokens in the CGG.
Let’s move on to the final step of the Yearn 3pool Vault and that is what happens with the 90 percent taken to Uniswap.
Here we see that the crv rewards are swapped for DAI and are deposited into the Curve 3pool to gain more 3Crv LP tokens. These new 3Crv LP tokens are added to the Yearn 3 Pool Vault and all the users that hold y3Crv vault tokens just got a bit richer. But it doesn’t end there, these new 3Crv LP tokens are further sent through the CGG and the whole right side of the diagram is in a feedback loop.
In my opinion, which is not the opinion of a certified financial advisor, this vault is a fantastic way to grow stablecoins with nearly no risk. The only real risk in that the actual smart contract coding is hackable, but Yearn has proven to have a very good track record in this manner, but nothing is impossible.
Furthermore, all these steps can be manually performed but the major benefits of using the vault instead are that is automatic and much more convenient and there is a gas cost-sharing mechanic inherent in the vault users. Gas costs are constant regardless of how much value is transacted, so with more and more investors in the vault these gas costs per individual are reduced.
I am also quite bullish on the idea of the Curve 3pool because it is a hub for any and all stable coins that Curve decided to launch as a metapool.
I hope this article has provided you with some value and I thank you for the time you invested in reading it. Safe investing and I hope your coins moon soon.