In the future, once the stabilizes, we may expect a return to the original divided system, which would help the $YFI token realize the full potential of its equity-esque properties. Bought back tokens will then be reallocated to the community over time, who may then choose to stake these tokens. This ensures a meaningful level of demand, given that Treasury reserves are substantial and growing. This would have been somewhat concerning from a demand POV, except for the fact that Treasury funds are now being allocated to buying back $YFI tokens. The formula would look something like this: The basic function we want to get to, in order to evaluate the $YFI token, is the present value of all future cash flows that the Treasury might generate divided by the total number of tokens. Another factor that makes this approach plausible is that all ~36k tokens are currently in supply and all are owned by members of the community no tokens were reserved for founders and VC investors, unlike with other protocols. This means that the treasury value is similar to an enterprise value that we would calculate for a traditional company, allowing us to estimate the intrinsic value of each $YFI token. While dividend distribution was overturned recently in YIP-56, and funds were redirected to buying back $YFI tokens on the open market, the system is likely to return to a dividend distribution mechanism once the platform is more mature. Token holders can stake their tokens to vote on governance decisions and, until recently, also received a portion of the Treasury proceeds as a dividend. This is where Yearn’s native token $YFI comes in. Of the remaining proceeds, 50% goes towards operating expenses such as team salaries and security audits, while the remainder goes into the Treasury. Once gas fees are paid down, 50% of the remaining revenue is distributed to the strategist, incentivizing more community participation and engagement. A majority of these have been created by Yearn’s founding team, however, community members can propose their own strategies to be added to the platform. Within these vaults are various pools, which represent a range of yield maximizing strategies. The recently introduced Vault 2 charges a management fee rather than a withdrawal fee, so as to tie Yearn’s incentives with capital entering the system vs. The primary distinction between the two is the fees charged. There are two types of Yearn Vaults: Vault 1 and Vault 2. Of these products, Yearn Vaults are currently the only ones that Yearn monetizes - this will be the focus of our analysis. In addition to this, Yearn also offers a product called Zap, which allows users to access various lending platforms such as Compound, Curve, and Aave from a single access point. There are currently four categories of investment vehicles that have several pools within them: 1) Vaults, 2) Earn, 3) Iron Bank and 4) Experimental.
On Yearn’s platform, users can deposit their idle cryptocurrency in a variety of algorithmically managed investment vehicles to earn a yield. Its products currently generate a return between 25–35% on average, which is attractive given the relatively low risk associated with most of these lending protocols. In exchange for this service, Yearn charges depositors a performance fee, as well as either a withdrawal or management fee, depending on the product in question.ĭespite being less than a year old, Yearn’s success rate has been impressive. Yearn’s selling point is twofold: 1) automated yield maximization and gas price reduction and 2) ease of use.
It does this by shuffling its assets under management across various yield generating pools on platforms such as Compound, Curve, and Aave. Yearn Finance is an Ethereum-based yield aggregation platform that helps users maximize yield from lending their cryptocurrency across various DeFi protocols. Based on the estimated present value of future Treasury cash flows, we expect the $YFI token could be worth at least 2X what it is today. Currently, $YFI tokens are basic governance tokens, however, tokens are expected to resume being dividend-yielding in the future once the platform is more mature. In the past, these proceeds have also been used to pay $YFI token holders dividends. Treasury funds are currently mandated to buyback $YFI on the open market and re-distribute it to the community to incentivize further participation. After paying costs, the remaining proceeds are deposited in Yearn’s Treasury. In exchange, Yearn charges its users a management and performance fee. Yearn makes the process of yield aggregation across DeFi platforms, such as Compound, Curve, and Aave, easier by minimizing gas fees and maximizing yield. Yearn Finance is an automated yield aggregation platform that has become a DeFi heavyweight in less than a year, after launching in July 2020.