May 5, 2022 - Economy

Yearn Finance has built DeFi's friendly yield robot

An illustration of a robot with an illuminated money symbol in it's display.

Illustration: Sarah Grillo/Axios

Robots on the internet are waiting to make money for you — if you have a lot of money.

Driving the news: Yearn Finance, the leading robo-advisor for yield, revealed details about its v3 this week, catching the project up with an effort that spans decentralized finance (DeFi) to standardize tokens that earn money.

Why it matters: DeFi is befuddling, but Yearn Finance has been laser focused on a straightforward mission: a place where people can dump their assets and count on its smart contracts to grow them.

  • "Smart contracts" really just means software-on-blockchains. Yearn's smart contracts get directions from the best yield chasers in the space, who are paid handsomely for it.

Context: Earning interest in DeFi is nothing new, but standardizing the means of accounting for it might open some new use cases.

  • ERC-4626 is the new standard on Ethereum for tokens that earn interest. It tracks how much of a pool of assets a user owns. If the pool grows, the value of those shares grows.
  • This approach might make it easier to, say, borrow against deposits or to buy structured products that guarantee a certain return.

Yearn is the original robo-adviser for yield in DeFi. It has a bunch of "vaults" where users can dump funds and expect them to earn more of whatever asset they deposited.

  • Each vault has a strategy (or several strategies) it follows to grow depositors' funds.
  • As of this writing, there are 11 vaults that are earning returns in the double-digits. One claims over 800% returns right now. Many more are in the high single-digits.
  • Returns are measured in the underlying asset, not in dollars.
  • And they fluctuate. Something earning an annualized rate of 800% this week might drop down to 8% next week.

🗝 The key for Yearn though, is that its strategies change. Yearn keeps moving its vaults' funds to the highest yield-earning places (it would make your head spin and fly off to do this on your own).

Yes, but: Gas fees. 😫 The returns above don't count the costs of using the Ethereum blockchain. Getting in and out of Yearn is computationally intense, so users pay a lot to do so.

  • For example, an Axios source checked the Curve Rocket Pool as we were writing this. Investing 1 ETH there ($2,950) would have cost $134 in gas fees. That's a 4.5% loss just going in (gas fees vary wildly).
  • The gas fee would have been the same for more money, though. This is why Yearn works best for well-resourced, sophisticated users.
  • But then again, this deposit to another vault (Curve stETH) only cost $12.
  • Yearn on Arbitrum or might be less pricey to start with, but they also have less of a track record and fewer opportunities.

Be smart: Yearn has a good security track record, but all smart contracts in DeFi are risky. This is no place to save for retirement.

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