Investment#
Not everyone can dedicate a lot of time to studying investments like cryptocurrency traders do. For the average individual, investing is just a side job, which creates a demand for businesses that manage assets for others, such as wealth management companies. In the DeFi field, there are also various investment opportunities, which are captured by a series of protocols with investment functions. These types of protocols are commonly referred to as "Yield Aggregator" protocols in the DeFi field. The following examples roughly illustrate how these protocols operate.
yearn.finance - Trading Aggregator Protocol#
Andre Cronje, the founder of yearn.finance (referred to as yearn), developed the yearn protocol single-handedly. When he started managing finances for his friends and family, he needed to manually check the yields of several protocols, including Aave, Fulcrum, Compound, and dYdX. Because this process was too cumbersome, he developed some contracts to automatically identify the optimal annual yield and switch his assets.
In mid-2020, yearn issued the governance token YFI. The concept of yield aggregation by yearn was unique at the time, and combined with the fair distribution of YFI, it quickly gained a lot of attention.
The basic function of yearn is yToken, where depositing tokens generates corresponding interest-bearing bond tokens, such as yDAI, yUSDC, and yUSDT. After depositing, the contract searches for the optimal yield among multiple lending protocols, such as Compound, Aave, and dYdX, for investment. The difference between yToken and cToken is that yToken switches between various protocols, while cToken is only the bond token for Compound.
yToken is primarily based on stablecoins, making it suitable for establishing asset pools on Curve. Later, yearn established asset pools on Curve, including yDAI, yUSDC, yUSDT, and yTUSD. This pool is called the Y pool, and the corresponding LP token is called yCRV. Here, yCRV represents partial ownership of the entire pool, rather than a single stablecoin. The asset structure of the Y pool is the same as the Compound pool. The conversion process is DAI (stablecoin) -> yDAI (interest-bearing stablecoin) -> yCRV (combination of interest-bearing and LP yield stablecoins). However, yDAI is already an asset that can automatically switch investment targets.
The product submitted above, which targets lending protocols (or money market protocols), is called Earn and is yearn's V1 version. In order to capture other investment opportunities and add new assets, yearn upgraded the product to Vaults. Each Vault corresponds to a specific token, and the number of strategies increased from 1 in V1 to 20 in V2. V1 tokens are primarily stablecoins, while V2 tokens expand to include ETH, WBTC, various DeFi tokens, and multiple Curve LP tokens.
Each Vault can add different strategies, and 20% of the income from each strategy is given to the strategy developers as an incentive for better strategy development.
In addition to investments, yearn has also attempted to develop other complementary products, such as vault quick switching, lending, insurance, etc.