The DeFi boom continues to spark new projects and Yearn.Finance gives a glimpse into the future that DeFi could build.
Despite some rough moments in the last few months, the DeFi train keeps rolling. Distributed applications (called dApps) provide an array of financial services to crypto users who want to borrow, lend, bank, acquire leverage to speculate on digital assets, or even create and trade synthetic assets.
The best of these DeFi projects already promise to significantly advance the crypto ecosystem but Yearn.Finance is currently undertaking one of the most interesting experiments in crypto today.
Why is DeFi So Important?
Decentralized Finance is more than just a buzz-word. It represents a giant leap forward for cryptocurrency on a technical level. Competent DeFi projects add a new layer to cryptocurrency that will help the industry mature beyond its current stage.
Currently the most impactful DeFi innovations are Decentralized Exchanges (DEXs) and Lending platforms. The former are the next generation of cryptocurrency exchanges that enable users to easily exchange fiat and Bitcoin for other cryptocurrencies. These are designed to combine the privacy of a peer-to-peer (P2P) exchange with the usability of a centralized exchange.
Lending platforms represent one of the biggest current use-cases of DeFi. DeFi lending platforms essentially cut out third-party lenders and make it possible for users to lend or borrow money. They tend to have higher interest rates compared to the wider market.
Current innovations, like the DEX Uni-Swap, or lending platforms like Vault, are impactful but there’s a problem. It is difficult for novice DeFi users to make sense of a crowded and complicated landscape. This insecurity has enabled less-than-legitimate projects to thrive in the shadows. Yearn.Finance could help bring some light to this issue.
A Portal to the World of DeFi
Yearn.Finance is a community-driven portal that provides easier access to DeFi products. The platform not only provides access to its own products, but also to products produced by different developers.
Yield Optimization
Yearn.Finance currently acts as a yield optimization protocol to help investors generate the greatest possible return from programmatic investment.
With over $11 billion locked in DeFi products currently, this already has a huge value proposition. However it’s not Yearn’s revenue potential that makes it so important, but its vision.
The YFI Token
A central component of any cryptocurrency product is its governance structure. In the case of Yearn.Finance this takes the form of the YFI token. There are only 30,000 YFI and they have all been distributed. More can be minted if the community votes in favor of this.
These tokens are important because a user has to stake them in order to vote on an issue facing the network. These tokens are locked for three days, but users will receive a fee in exchange for voting. This in itself is interesting but the plot thickens when we look at Yearn’s creator Andre Cronje.
In stark contrast to many other project owners, Cronje did not set aside any YFI for himself. Instead he gave all of it to people who had deposits in key liquidity pools important to the project. This decision has strong symbolic meaning and sets the stage for the most important aspect of Yearn.Finance: Decentralized Governance.
Community-Led Governance As the Next Step Forward For Crypto
Contributors to the Yearn.Finance project recently released a Manifesto that laid out their vision for how a decentralized governance system could work. The aim of this manifesto is to replace traditional centralized governance entities, like the companies behind Ripple and Ethereum, with a community-owned and community-governed structure.
The core of the document emphasizes that Yearn does not cater to investors or speculators and that the organization has no single voice. It also focuses upon the importance of collective action and contributors to the project.
Of particular interest is the line about the YFI token itself.
“Yearn is governed by YFI, but YFI does not govern Yearn’s contributors.”
In essence, owning YFI gives a user the right to signal their preference for the direction of the project but it does not give them ownership of the direction the project will take.
It may seem strange for an investment platform to focus so heavily on governance, but Yearn represents one of the most ambitious experiments in decentralized governance today. If it proves to be a success it could provide a better way for the crypto industry to regulate itself, without being forced to rely upon centralized traditional governance institutions.
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