Homework Task week7 for Professor @gbenga |Decentralized Finance|Yield Farming|
Brief Overview of Decentralized Finance (DeFi)
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The traditional method of finance has made it very difficult for individuals to access financial tools and services such as lending, borrowing and staking features. This system has posed to be none transparent because of the presence of a central body or third party influence in accessing these financial tools. With these barriers, DeFi have filled these gaps in the traditional system of finance by providing financial services to users openly and more transparently using smart contracts and blockchain-based technology. With DeFi, users can access financial services in a decentralized manner meaning they have full control of their asset even while accessing these services.
Yield Farming
The DeFi ecosystem has been booming since its intervention in the cryptocurrency industry. An emerged concept in the DeFi ecosystem is yield farming. Aside, the lending and borrowing services using DeFi, users can also earn high rewards in cryptocurrency using permissionless liquidity protocols in a decentralized ecosystem. Yield farming allows users to earn passive income by participating in a liquidity pool by holding and staking their assets for a certain period. A yield farmer flips through DeFi protocols like Compound, Maker, Synthetix looking for the highest yield strategy. Yield farming has a slight similarity to staking, in the sense that it works with liquidity providers where users deposit funds into the liquidity pools and earn a reward.
Currently, most yield farming activities are done using the ERC-20 token on the Ethereum platform and users are also rewarded in ERC-20 tokens.
How does yield farming work?
Yield farming uses the automated market maker model which involves liquidity tools and liquidity providers. In yield farming, users deposit funds into a liquidity pool that is open to lending and borrowing by other users. The interest and fees incurred during these lending and borrowing services are added to the liquidity pool for rewarding yield farmers.
Yearn.Finance
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Source
Yearn.Finance is an ecosystem of protocols built on the Ethereum platform that enable users to interact with DeFi protocols to earn high APY. Yearn.Finance automatically moves users funds across DeFi lending and borrowing protocols like Compound, Aave, Synthetix and Dydx to maximise APY. Yearn.Finance is a community governed protocol that used YFI as the community token. There are other protocols in the Yearn.Finance ecosystem includes:
- ytrade.finance: This is a protocol that allows users to go long or short on stablecoins while offering 1000x leverage.
- yliquidate.finance: This feature offers loans in Aave to help efficiently liquidate funds when needed.
- yswap.exchange: This is another important protocol in Yearn.Finance ecosystem enables users to manually deposit and withdraw funds between various DeFi protocols.
- iborro.finance: This is a feature in Yearn.Finance ecosystem that tokenizes debt in other protocol with the help of Aave. This debt can be used in additional DeFi protocols when tokenized and this opens up liquidity streams for the DeFi ecosystem.
YFI Token
YFI is an ERC-20 token built on the Ethereum blockchain that is used to govern protocols within Yearn.Finance ecosystem. YFI is earned by interacting with Yearn.Finance protocols and providing liquidity. Similarly, you can buy YFI from exchanges.
Technical Overview of YFI
YFI is ranked 72 on the CoinmarketCap with a market capital of $1.24 billion. The total supply is 36,634 with a circulating supply of 36,634. This small value is because YFI wasn't premined or was there any presale during ICO. The token in circulation was obtained by providing liquidity in Yearn.Finance protocols or by buying from exchanges. Similarly, YFI has reached an all-time high of $42,766 and an all-time low of $3,072. Right from the invention of YFI, the token has a 3,105% return of investment. YFI have been in an uptrend indicating the dominance of the token in the DeFi ecosystem.
How to buy or earn YFI?
There are various ways to earn YFI and these methods using pools. These Includes:
- Users lock their tokens in smart contracts and receive YFI as a reward.
- Users can earn YFI by depositing stablecoins into liquidity pools or by depositing both stablecoins and YFI to the liquidity pool to earn YFI as rewards.
There are so many exchanges where YFI can be bought. Uniswap accounts for 35% of YFI 24-hour trading volume. This is a decentralized exchange and the best place to buy a YFI token. Similarly, YFI is trading on major exchanges where users can also acquire the token. The picture below shows some of the exchanges that YFI is currently trading on.
YFI Wallets
YFI token being an ERC-20 wallet means it can be stored in any wallet that supports ERC-20 tokens and Ethereum based assets. Software wallet includes Trust wallet, metamask wallet, Myether wallet, Atomic Wallet, Exodus wallet, Coinomi wallet etc. Hardware wallets include Trezor wallet, Ledger or keepkey etc.
Conclusion
The benefits of the DeFi ecosystem in present-day finance cannot be overemphasized. Users have permissionless access to financial services in a decentralized manner while having full control of their funds. Transactions are carried out without the involvement of any central body or a third party, thereby allowing seamless and fast transactions with a lower cost. Yearn.Finance seems to be the emerging future of DeFi protocols with outstanding features that enable a user to earn passive income at ease without any form of technical knowledge. We hope to see DeFi protocols keep improving in the future and eliminate the challenges faced in the traditional finance system.
Thank you Professor @gbenga for this wonderful lesson.
Special regards:
Cc:@steemcurator01
Cc:@steemcrator01
Cc:@gbenga
Cc:@trafalgar
Thanks for being a part of my class and for participating in this week's assignment. I hope you learned from the class as the aim of the school is to teach and allow people to learn alongside.
Yearn finance got its popularity the same way uniswap did. It seems that AMM Dex tokens are the synonymous to them being popular.
Rating 7
Thank you Professor @gbenga. Your lessons have always been informative.
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