Confused about how Yearn Finance works? And what’s the YFI token all about? You’ll discover out all of this and extra on this video.
Okay, let’s begin with what Yearn Finance is all about.
The principle factor of Yearn Finance is the Yearn protocol.
The Yearn protocol, in essence, is a yield optimiser that focuses on maximising defi capabilities by routinely switching between totally different lending protocols.
Earlier than we clarify the mechanism of the protocol itself let’s see how yEarn got here into existence. In early 2020, the writer of Yearn protocol – Andre Cronje, began trying into automating his technique for selecting the best paying lending protocol for his secure cash.
The protocol, in essence, creates a pool for every secure coin. By depositing a secure coin to a pool, the consumer receives their yTokens which can be yield-bearing equivalents of the coin that was deposited. For instance, if a consumer deposits DAI, the protocol points yDAI. The DAI that’s pooled collectively can then be moved between totally different lending protocols to at all times maximise the yield.
For example, if Aave provides a greater yield on DAI than Compound, the yearn protocol can resolve to maneuver all or a few of the DAI to Aave. The protocol checks if there’s a higher yield obtainable on the time a consumer deposits or withdraws cash from the pool, triggering a rebalance of the pool if vital. If a consumer desires to withdraw their preliminary DAI + accrued curiosity they will redeem their yDAI and obtain the underlying DAI.
One factor that the protocol at all times assures is to by no means swap the initially deposited secure coin to a unique secure coin, even when there’s a increased yield obtainable. So for instance, if a consumer deposits DAI, the protocol would by no means swap it to USDC, even when USDC has a better yield. It is because most customers need to withdraw the identical secure cash as they initially deposited.
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