What is Yearn Finance and How Did it Become The World's Most Valuable Cryptocurrency?

Yearn.finance’s governance token, YFI, has undergone a seismic rally throughout 2020 to establish itself as the second-largest decentralised finance (DeFi) coin on the cryptocurrency market. Within six months of launch, YFI’s market capitalization surpassed $1.1 billion dollars in value. 

By the end of August, YFI surpassed a market value of $27,000 - dwarfing the mighty rally that Bitcoin had undertaken in late 2017 and highlighting the power that DeFi projects can hold in comparison to their crypto counterparts. 

(Image: Nairametrics)

Writing for Forbes, Joseph Young notes that there are four significant factors behind the dominance of yearn.finance; a unique supply, an active community, a reputable developer, and innovative products. 

Can these factors alone help to keep yEarn soaring above the likes of Bitcoin and Ethereum? Or will the token’s bubble soon burst? 

The Rise and Rise of DeFi

According to Ivan on Tech, yearn.finance (yEarn) was developed solely by Andre Cronje and stands as a yield aggregating platform operating on the Ethereum blockchain. The use of the Ethereum blockchain alone has prompted some investors to sell Bitcoin to Ethereum in a bid to cash in, but in DeFi yEarn has subsequently grown into an ecosystem of protocols that intends to maximise percentage yields (APY) for its users. 

yEarn operates on DeFi protocols like Curve, Compound, Aave and dYdX to optimise token lending. Fundamentally it’s a protocol that diverts liquidity to different areas of the DeFi universe in search of optimum returns. 

Alongside yEarn, DeFi itself has grown to attract widespread attention across the world of cryptocurrencies. Decentralised Finance refers to financial services that are brokered using smart contracts, which are automated and enforceable agreements that don’t require intermediaries like banks or lawyers, and instead rely on blockchain technology to ensure both parties are treated fairly. 

The value that’s locked up in DeFi smart contracts has exploded in recent months and years from $2.1 million in 2017 to over $6.9 billion today - throughout the month of August 2020 alone over $2.9 billion was added to the total value of these contracts. 

The value held up in smart contracts has carried a knock-on effect for the values of their associated tokens - and one of the leading beneficiaries of this has been yearn.finance. 

Unique and Decentralised 

The process of yearn.finance’s launch attracted the attention of DeFi enthusiasts from the very start. Cronje rebranded and relaunched iearn.finance with a bolstered suite of products. 

The transparent and decentralised launch of yearn.finance offers governance rights to all YFI token holders and adds a wholly unique approach to the DeFi protocol. 

According to Daryl Lau, writing for Deribit Insights, “Cronje decided that he would create a YFI token, and with that pass over control/governance of the entire yearn.finance suite of tools. Despite having the power to give himself a pre-mine or founder reward, he elected instead to keep zero tokens for himself.” 

One of the more intriguing factors behind yearn.finance was its token. With a fixed supply of just 30,000 tokens, YFI comfortably surpassed Bitcoin’s value thanks to its scarcity. However, with a market capitalization of less than $1.2 billion, YFI has just a fraction of the cap of Bitcoin - which stands at around $216 billion. 

Its scarcity means that yearn.finance is tricky to get hold of, and the impressive performing DeFi cryptocurrencies won’t yet be widely available on crypto exchanges. However, given the rapidly increasing levels of adoption of smart contracts, it’s reasonable to expect more efforts to be undertaken to make DeFi tokens more obtainable. 

Pragmatic Finance

On the 17th of August, the lure of yEarn was bolstered by its development team announcing the release of a tokenised insurance platform called yinsure.finance. Via the use of insured vaults and claim governance, yInsure presents itself as an insurance opportunity that operates on the DeFi protocol. 

The emergence of the DeFi movement is powered by quantifiable financial pragmatism. Earlier in August, venture capital investors speculated that insurance could become a significant presence in the world of DeFi, alongside smart contracts. 

Speaking to Coin Telegraph, Fred Ehrsam, co-founder of the crypto fund Paradigm, speculated that blockchain-based insurance that covers protocols and DAOs possesses the potential to become a significant part of DeFi. 

“Crypto-native insurance has the potential to be the next big financial primitive in DeFi. The market size could be enormous and the initial wedge is credible. Whoever solves them can create one of the fundamental building blocks of DeFi, supporting billions in value today, and unlock broader use by increasing the amount of capital users, investors, and traders are willing to commit to the system,” Ehrsam claimed. 

Bright Futures for DeFi

An argument often levelled against cryptocurrencies is that they exist in a bubble, based heavily on speculative markets. However, the tokens that have sprung into life off the back of the DeFi movement are backed by tangible finance tools. 

The arrival of smart contracts has been long-mooted in the realm of blockchain, and yearn.finance’s intelligent expansions into the field of on-chain insurance has actively bolstered sentiments towards their YFI cryptocurrency. 

While yEarn might not behave exactly like a traditional cryptocurrency like Bitcoin, it’s fair to say that its 2020 rally has taken the world by storm. Whether it will eventually experience falls like Bitcoin in 2018 remains to be seen, but founder Ivan Cronje has clearly heeded the lessons of the past in ensuring YFI maintains its scarcity and honesty. 

As smart contracts become more of a technologically viable, and economically efficient form of brokering transactions between parties, it’s reasonable to expect interest in DeFi to continue to build. There’s plenty of growing room for more financial applications that can be undertaken through blockchain technology too. 

With ever-improving technological infrastructures and increasingly ambitious projects taking place, we could see even more astounding accomplishments for yearn.finance as 2020 rumbles on. For what was expected to be a challenging year for finance, DeFi represents a ray of optimism for the future.

Author Bio

Dmytro is a tech and crypto writer based in London. Founder of Solvid and Pridicto. His work has been published in IBM, TechRadar, Bitcoin.com, FXStreet, CoinCodex and CryptoSlate.