What is YFI? An Introduction to the king of DeFi
The first coin that increased thousandfold in 2020.
Welcome to the Bixiaobao Blockchain Open Course! Today our topic is: what is YFI?
YFI is another cryptocurrency with a price exceeding $10,000 after Bitcoin with no private equity or team tokens. It is 100% mined by the community and shares a similar issuing method with Bitcoin. Fans also call YFI the Bitcoin of DeFi.
From worthless to soaring, in just 43 days, the price of YFI skyrocketed more than a thousand times, making YFI a legend.
The birth of YFI
Yearn.Finance, founded in early 2020, is the first DeFi revenue-based aggregator.
At the beginning of development, the team realized that most of the DeFi lending platforms in the market have interest rate spreads. For example, if the same deposit is in USDT, the profit of Compound may be 5%, while the profit of Curve is 7%. How to maximize your profit and realize automatic switching?
Andre Cronje, the founder of YFI, solves this problem with smart contracts: Users simply put their money into a liquidity pool, combine it with a smart contract, and use it to compare the annualized rates of return on different lending platforms, and automatically transfer their money based on that.
Yearn.Finance was born. Users store their stabilins in the Yearn protocol, which helps users adjust the Compound, Aave, dYdX and other protocols to get higher returns.
At the beginning of Yearn’s creation, it did not attract too much attention until the issuance of governance token YFI in early July. Yearn became a hit in just one month.
YFI is Yearn’s governance token, with a total issuance of only 30,000. There is no team share, no pre-mining or public offering, and even the founder himself has no token reward. All the tokens are mined out.
Users can obtain a certain number of YFI tokens by depositing tokens in Yearn’s revenue pool. The circulation is halved once every certain cycle. By the end of July, 30,000 YFIs were all issued.
Based on the halving mechanism, the earlier you join, the more YFI you can get. Therefore, many people rushed into the YFI wave, resulting in a rapid rise in the price of YFI, from a few dollars to tens of thousands of dollars in just 43 days.
Subsequently, the popularity of YFI attracted the attention of the head exchange, and landed in Binan, OKEx, Huobi and other first-line exchanges, and became the market darling.
Despite the founder’s repeated claims that YFI is an air coin without any value, the community was strongly speculative. After YFI mining ended, the price continued to soar, and according to the data of Bitcoins, the price of YFI rose as high as $43,000.(check YFI price lastest.)
Analysis on the causes of YFI inflation
There are three reasons for the skyrocketing of YFI, according to www.bixiaobao.com:
Fast product iteration. YFI’s soaring prices is related to Yearn’s rapid development of products. In just a few months, Yearn launched V2 as well as decentralized insurance such as yinsure and finance. At present, Yearn has a locked position of 590 million dollars
Decentralized governance. In the cryptocurrency market, the more decentralized it is, the more popular it is. A typical example is Bitcoin and Bitcoin Cash. No matter how they fork, the community consensus of Bitcoin cannot be duplicated, which is the reason why Bitcoin’s market value has been at the top for a long time. Like Bitcoin, YFI is a completely decentralized token, since the allocation of YFI is generated by mining from the beginning. Since the 30,000 tokens were allocated completely, YFI has left all of its governance to the community. Recently, Yearn.finance tweeted that YIP-54 governance proposal: working capital has been officially passed. Beginning with the introduction of v2 yVault, 50% of the effective capital management fee will be allocated to the operating fund and the remaining 50% to YFI Stakers. This incident has once again made YFI prices take off again.
Liquidity mining mechanism. To participate in YFI liquidity mining, it is necessary provide Balaner Exchange with liquidity, in which the ratio of DAI to YFI is 98:2. However, early users do not have many YFI, so they will automatically purchase YFI in the market making process, which virtually promotes the price rise of YFI.
Today, YFI mining has long been over, less crazy hype, Yearn products are gradually improved.
Currently, Yearn products mainly include Vaults, EARN, ZAP, COVER, and so on.
Vaults: users can earn a certain amount of income by depositing specified liquidity pool tokens (also known as “LP tokens”) into vaults. Currently, there are 12 kinds of LP token deposits supported, among which the highest is 3CRV certificate, with an annualized return of 23.7%.
The advantage of vaults is that there is no need for the user to collect it manually, and the user only needs to pay a certain fee when entering and leaving the field. Compared with manual operation, it saves a lot of gas fee.
At first, YFI charged users 2% of the principal as a management fee. Due to the high cost of smart contract call and the management fee, many pool users lost money when entering the pool. Later, as the community proposed, the management fee is now 20% of users’ profits.
The profit of the vault is closely related to the external environment and the number of participants. Sometimes, a high-yield pool comes out less than 24 hours, because the number of participants increases dramatically, the profit will gradually decline.
Earn: Similar to the Yu ‘e bao of Alipay, you can get profits by depositing funds. Right now earn supports 6 stablecoins and a non-stable coin called WBTC.
Unlike a vault, which holds liquidity certificate or LP tokens, earn holds a particular token. The returns of earn are not fixed and vary according to the market. Even so, the earning in the chart below is still better than most of bank products.
Zap: It is equivalent to an exchange function, which can exchange various LP tokens at a low slippage without staking by users themselves
Yinsure: A decentralized insurance. After paying an insurance premium, it can provide a certain protection for the pool pledged. In case of black swan events such as being stolen by hackers, users can get some compensation.
The founder of YFI is Andre Cronje.
Prior to entering the cryptocurrency field, AC had got considerable professional experience. Graduated from law school, with self-taught knowledge on computer and a beginning career as programmer, Cronje had involved in everything from communications technology to mobile network security, from banking payments to big data. After three or four years in Fintech, however, he started to get a little bored.
In 2016 a project on distributed consensus caught his eye. Since then, he has shared code reviews of some projects for people to learn from at Cryptobriefing, a cryptocurrency media website.
Cronje has friends who are interested in cryptocurrencies, but they have no experience. So, everyone wanted Cronje to help them manage their money. After 19 years of volatility, Cronje didn’t want to hold cryptocurrencies whose prices could be extremely volatile, so he shifted his assets to stablecoins like USDT, USDC and DAI. He spent a lot of time and effort to move the money, because he wanted to put everyone’s money where the interest rate was highest.
In early 2020, AC founded Yearn. In fact, Yearn’s success has something to do with the community.
The charm of fairness in DAO on Yearn has attracted many top talents from around the world to join in this project. Here is a short list for non-anonymous or semi-anonymous members.
bantg — Anonymous developer of well-known figures in the Ethereum community;
milkyklim — German data scientist,
orbxball — PhD in Computer Science — Cornell University;
fubuloubu — Ethereum development language Vyper open source project maintainer;
devops199fan — Anonymous well-known figure in the Ethereum community;
Azeemfi — Top investor;
Vance Spencer — Co-founder of Framework Venture Capital.
In short, the success of YFI is reasonable and inevitable. As the first revenue aggregator of DeFi, when the market is short of corresponding products, YFI came out and gained its users and popularity, which inevitable. On the other hand, the creative token mechanism also adds a lot of highlights to this project. Finally, the contingency of YFI lies in that it cannot be copied. After Yearn was founded, Andre Cronje established other projects, but many loopholes were exposed in the contracts and all ended in failure.
Blockchain Open Course is a series of introductory courses on blockchain by BiXiaoBao.
To know more about blockchains, follow the column of Bixiaobao.
For repost please cite the source.