If in July you told someone that you discovered a stock that can raise its value 1,000 times in a few weeks, at best it would shake its head condescendingly. Although he’d probably call the paramedics to put your on a straight jacket.
And yet, that’s exactly what happened with Yearn.finance (YFI). So, what is this famous YFI and how does it work?
What is Yearn.Finace
Yearn.finance is a completely decentralized entity based on the Ethereum network, which acts as an automatic performance harvester. It aims to maximize the investment result by seeking the best opportunities in the market, taking advantage of algorithms based on artificial intelligence.
I know that this might sound a bit far fetched. This is why we’re going to explain its operation in simple terms.
We have a platform on which you deposit your Ethereum (or other currencies), which invests on your behalf, promising to offer you a valuable passive income. This is not a company – and this is important. Like Bitcoin, it’s a protocol.
YFI was not made available to ICO (initial coin offering), it was not bought by investors from a private institution and it did not come out of mining. Its distribution was free and fair, proportionately to those who provided liquidity to the system.
Even its creator, Andre Cronje, a self-taught programmer from South Africa, didn’t kept some YFI to himself. From what he claims, he went broke by building it and he had to borrow money to finish it. You might think, how did he manage to go broke? Well, a good programmer doesn’t mean he’s necessarily a good businessman.
Essentially Yearn.Finance simplifies the process, so that even the average Joe can benefit from it without having to be on top of his computer all the time.
Its comparative advantage is that it takes advantage the direct information on changes in yields on the various financial products, thus lending your currency where there are the best returns in the form of “interest rates”.
Who Offers Retention Fees?
Who offers retention fees in the crypto space? Lots of cryptocurrencies. From completely unknown and dreaded, to reliable stablecoins. Because the selection process is done automatically by a “smart” artificial intelligence algorithm, higher returns are achieved than you would manage on your own. Its added advantage is that it saves costs from Ethereum transactions, which especially in the last period are very high. Of course, all of the above under the regime of absolute transparency.
Another peculiarity is that there are only 30,000 coins in circulation. This, it seems, has worked positively. Although it was created just three months ago, it has rocketed to the 25th place in terms of capitalisation.
Of the 24 currencies that exceed it in value, you can earn money either by acquiring it and expecting its price to increase or by trading. But none offers passive income, such as YFI.
The Governance Mechanism
Behind the currency is a governance mechanism. YFI holders have a say in the decisions. For example they vote on the techniques used to make money. Anyone can also propose an even smarter idea, which is put to the vote, to make the system even more efficient. One question that has been raised for a decision is whether they should make more coins, because the 30,000 may be a few.
YFI holders receive a fee for holding the currency. The revenue shared is generated by the fees they charge to those who use the platform. Their safe has at least $500,000 under statute to cover operating expenses such as those of auditors. What’s left over is shared by the beneficiaries. The only condition for receiving the reward is to vote. Immediately after the vote follows the locking of your coins for 3 days, a period during which you can claim the amount you are entitled to.
A Protocol That Generates Revenue
In other words, we have a protocol which not only generates revenue and profits for those who own it, but also for it self. Imagine it as a decentralised hedge fund that charges management fees. Only when operating expenses, such as official auditors, are deducted from the proceeds, the profits are shared with community members.
How much can these profits be? Potentially too much. Very quickly it raised revenue that exceeded the $500,000 threshold and continues to grow. And all this on a platform of just three months. Of course, that’s where the risk lies. It has not been tested for the long run, so it is likely that problems will arise along the way.
From an investment point of view, Yearn.finance has the characteristics we love most in cryptocurrencies: finding asymmetric bets. A bet is considered asymmetric when the damage is limited to 1x, while the possible rise is 10x or 100x. In the bad scenario, you may lose it all, but in the good scenario, you can multiply the invested capital.
In conclusion, anyone who thinks the trend will continue in recent weeks, with DeFi applications performing spectacularly against bitcoin, YFI has every reason to be on its radar.