OpenFi: Yearn.Finance
I review Aave using the OpenFi framework in this post, one of the most well-known lending applications in DeFi.
Disclaimer: The following piece is simply a summary of my opinions and should not be construed as investment advice.
O: Opportunity - How large is the Total Addressable Market? Does the project disrupt an existing market, or does it create a new market?
Score: 4/5
Yearn operates squarely within the DeFi space, which has grown from $10 to $14 billion in total value locked (TVL) in the last two months. While this is a far cry from the trillions invested in traditional finance, we should expect to see consistent growth in the sector over the next several months. Institutional capital is slowly trickling in and new products are being launched weekly.
Yearn started as a yield platform for stablecoins through its Earn product but has since expanded to a suite of DeFi products. Yearn has disrupted the DeFi space, capturing almost $1 billion of value at its peak. However, that has since dropped and settled to around $400 million TVL in less than 3 months. I believe this sharp decline has a lot to do with challenges scaling within the current incentive structure (more on this point in the Fundamental section of this post).
P: Product - How innovative and differentiated is the product? Is there product-market fit? How easy is it to use the product (i.e. good user interface and experience)?
Score: 4/5
As I mentioned, Yearn is a DeFi gateway offering a range of DeFi products:
Earn: Users can deposit and earn yield by depositing one or more of the six supported stablecoins. The platform then aggregates data from various lending platforms and determines the optimal allocation of the funds into different yield pools like Aave, Compound, etc.
Vault: Similar to Earn, except instead of depositing just stablecoins, the user can deposit any of the supported tokens (i.e. cDai+cUSDC or 3CRV). On the backend, controllers deploy different high yield strategies to maximize returns for depositors.
Zap: Gateway to the zapper.fi tool. Users can access several liquidity pools and earn yield from lending aggregators and trading fees by being liquidity providers.
Lending: Decentralized lending across wETH, DAI, and y3Crv provided in collaboration with Cream.
Cover: Smart contract risk management through Cover Protocol using Nexus Mutual
Each product is separate and distinct with Yearn providing a simple UI allowing easy access to each page. I was able to connect my MetaMask wallet and begin using the tools seamlessly. The only downside is that each offering requires a bit of background experience in crypto to fully utilize. As non-degens, Yearn may not be as intuitive as some of the other products out there. The platform is also in beta testing, so Yearn’s DAO is constantly rolling out updates. So far, the products offered by Yearn are quite comprehensive when compared to other DeFi yield aggregators.
E: Experience - Does the team have any previous experience building software and technology? Is the team well-versed in blockchain? What previous experience does the team have to ensure success?
Score: 3/5
Founder Andre Cronje has extensive experience in traditional and crypto technologies. Before all that, he was a practicing lawyer. After a few starts and stops, Cronje bootstrapped Yearn and released the project straight to the Ethereum Mainnet. Interestingly, he left none of the 30,000 YFI governance tokens to himself on genesis but rather distributed them all to liquidity providers on the platform. Now what’s important to understand is the Cronje is both an elusive individual within the crypto community and has almost a cult following. He has said on multiple occasions that he could leave Yearn at any time. A long-time World of Warcraft player, Cronje states in a previous interview “I have no vision. I have no plans. I have no goals. For now, it’s fun. Maybe in a month, it’s no longer fun and I go back to playing Warcraft.”
During the Defi boom earlier this year, it could be argued that Cronje was one of the more influential developers in Defi. Cronje became somewhat controversial after the EMN hack. In short, EMN was a trading card game protocol that Cronje deployed prematurely. Cronje and Yearn contributors such as Blue Kirby and Banteg promoted the project directly and indirectly via retweets on Twitter which led to $15 Million being deposited and stolen by a smart contract exploit. Cronje decreased his social media presence after the incident, however seems to be active again on his blog with a series of posts that outline different collaborations between other Defi projects such as Akropolis, SushiSwap, and others.
Apart from Cronje, Yearn has about 10 other employees listed on their website They consist of mostly technical development resources to scale the platform. Compared to other crypto products, Yearn does not have any business development or commercial function as far as I can tell. Features of the platform are released and generally spread through word of mouth. This approach feels more decentralized, more organic, and ultimately, more fitting for DeFi compared to most other DeFi products out there. But it’s also far less structured. From a traditional investor angle, I look at this team build-up and see a few common indicators of success. However, on the other hand, YFI is also the most valuable high-cap governance token today and it seems they are doing something right. With the introduction of Yearnv2, new strategies for vaults can be proposed by anyone, and developers whose strategies are implemented get paid for their work. Furthermore, with the recent mergers with projects like Akropolis, Yearn was able to leverage Akropolis’ developer resources to implement new strategies. Decentralized ecosystem and governance and management seems to be working very well in the Yearn ecosystem.
N: Network Effects - Will more people in the network benefit when others join? Are there high switching costs and stickiness in using the platform?
Score: 5/5
For most DeFi projects, network effects come from high performing investment products and a loyal fanbase. Yearn exemplifies both. The zero premine, zero team tokens liquidity mining program for YFI tokens was game-changing and helped Yearn bootstrap a strong community. Earn and Vault portfolios consistently leverage the best investment strategies for stablecoins and other tokens by actively seeking opportunities across the DeFi space. Although yields have come down in recent months due to increased volume, they are still in line with industry bests. There are only fees for withdrawals with incentivizes users to continue providing liquidity.
Recent mergers, or collaborations between other projects (SushiSwap, Akropolis, Cream.finance), exemplify the composable nature of the DeFi ecosystem and the ability for projects to combine resources to increase the total value delivered to users. Some examples include the ability to include vaults for xSushi holders or Yearn being able to add new Akropolis based strategies for its existing user base and the Akropolis community.
Andre Cronje is also a top personality within DeFi. His fan following along spurs a lot of the hype and subsequent growth for the platform. While there is significant founders risk with this approach, so far, it’s proven to be quite successful in getting Yearn to where it is today. As the platform grow and improves, this positive feedback loop will bring more people into the ecosystem.
F: Fundamentals: Do the underlying unit economics make sense within the current network? How quickly are users growing? How much value has been transacted or locked up?
Score: 4/5
Yearn charges 0.5% fees on fund withdrawals from active strategies. The platform also takes a 5% fee on what the company calls additional yield. This is mostly used in community vaults to subsidize gas prices for specific high gas transactions that earn more yield. 10% of this fee goes to strategy creators and 90% goes to the treasury. This balance is currently being voted to allocate higher rewards for strategy creators to further incentivize scaling opportunities. YFI holders are entitled to rewards when the Treasury vault increases beyond the $500,000, which is used to pay operational expenses such as developer compensation and community grants. To receive rewards, YFI holders must vote on governance proposals. Unlike other cryptocurrencies, YFI governance tokens can be valued using traditional valuation frameworks. It is not uncommon to compare YFI to other projects using metrics such as Market Cap/Revenue.
With an investment strategy, crypto or otherwise, scaling becomes a real issue when hundreds of millions of dollars in value are locked. When the platform contributes significant amounts toward available yield pools, the generated returns scale down with volume. Yearn in recent months has been scaling through acquisition. Just last week, the platform announced a proposed merger with SushiSwap, possibly adding $700 million in value. This, along with a possible layer 2 scaling solution, could reduce transaction fees and improve growth. However, only time will tell.
I: Incentives - Are there proper cryptoeconomic incentives in place for network stakeholders and users to support blitzscaling?
Score: 4/5
On Yearn, there is an abundance of options for realizing returns. For the users, Earn offers yields of 8% on average across its 6 different stablecoins through Curve. Top Vaults on the platform typically have annual rates of around 10% to 30%, depending on the time period. This is in line with other top providers.
The governance side is where things get a bit wild. Yearn’s governance token YFI is fixed at 30,000 token supply. Being a completely decentralized governance structure, token holders can stake on the ygov.finance site to earn staking rewards and approve the 9 multisig signers who vote on governance measures and additional minting in the future. Given the limited supply of the YFI token, it’s deflationary, almost to a fault. The token debuted at around $1,000 in July 2020 and has since risen as high as $39,000. In the past several weeks, its value has hovered between $20,000 and $30,000. Over time, as the platform grows and more strategies and revenues are generated for YFI holders, the price may climb even higher, assuming no new tokens are minted. There have been proposals to increase YFI inflation to pay for development in the Yearn ecosystem, however, those proposals were not passed and the community oped for using system rewards in the Yearn treasury as operational capital instead.
Overall Score: 24/30
Yearn’s DeFi platform offers a host of DeFi products that consistently provide crypto degens and DeFi enthusiasts high value and yield. While the platform has had its controversies, there is no doubt that Yearn has grown tremendously since its inception. I look forward to tracking Yearn’s development both in terms of organic growth and acquisitions in the coming months.
Yearn
