Investment Highlight: Yearn Finance

by Matthew Harcourt

Nothing quite sums up the open, permissionless and fast paced nature of DeFi like Yearn Finance.

In February 2020, Andre Cronje created Yearn Finance to automate the yield farming strategy that he was performing manually on behalf of his family and close friends. This trading strategy was simply moving his USD stablecoins between the various lending protocols in order to achieve the maximum yield possible.

In mid July 2020, Yearn Finance launched it’s governance token YFI in order to decentralise the project and attract capital through ‘yield farming’. The launch of this token increased the total value locked (TVL) in Yearn from US$7.8 million to $336 million in only 7 days. Apollo was an early farmer of YFI and almost half of our current YFI holdings were farmed throughout July and August.

Total Value Locked (USD) in

Total Value Locked (USD) in

Although Yearn Finance began as a lending aggregator it is now described as “a suite of products in Decentralised Finance, maintained by various independent developers and governed by YFI holders”. The most popular products on Yearn are the capital pools known as ‘Vaults’, these vaults are designed to automatically generate yield based on opportunities present in the market. These vaults automate complex yield farming strategies in order to generate the maximum amount of yield possible. Vaults are created and maintained by developers known as strategist’s, who are incentivised by receiving a share in the profits of the strategies they create.

YFI reached it’s all time high price of US$43,678 on the 12th of September 2020. With a total supply of only 30,000 YFI, this price put a $1.3 billion valuation on the 2 month old coin. YFI subsequently witnessed a brutal sell off and traded for around $8,500 for two days in November. Since then, Yearn Finance have announced multiple partnerships with similar DeFi projects which have been described as the first M&A activity performed by a decentralised protocol. These partnerships are a core part of Yearn Finance’s imminent V2 release.

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Key partnerships:

Cream Finance: Cream specialises in lending- related products and will allow Yearn to expand its various strategies through the use of leverage and the addition of an in-house money market.

Akropolis: Akropolis will become the front-of-house institutional service provider for Yearn Finance’s best-in-class Vault and Lending protocol solutions.

Pickle Finance: Pickle Finance specialises in yield generating Vaults (known as Pickle Jars) that are very similar to Yearn’s Vaults. Their partnership will reduce duplicated work, increase specialisation and leverage the shared expertise of both Pickle and Yearn developers. In essence, the purpose of this partnership is to acquire talented developers.

Cover Protocol: Cover is a decentralised insurance protocol that will become the backstop cover provider for the Yearn product suite. This partnership will allow for users to be protected against smart contract risk.

Beyond these partnerships, the founder of Yearn Finance has announced the launch of a new project called Deriswap. Deriswap combines token Swaps, Options and Loans into a single capital efficient contract. It is currently unknown whether Deriswap will be integrated into Yearn or operate as a standalone product. However, Andre has acknowledged that his motivations for creating Deriswap options stem from wanting to incorporate options into Yearn Vault strategies to mitigate price risk.

Yearn Finance and the YFI token have had an extremely volatile past 5 months both in price action and investor sentiment. Despite this, the core developers behind the protocol didn’t stop building and continued to drive the project forward from a technical perspective. Following the recent announcements, imminent V2 launch and a shift in investor sentiment, YFI is currently trading at $26,000.

No other project quite exemplifies the permissionless nature of innovation in crypto, the free-flow of liquidity in DeFi and the free market like Yearn Finance and YFI. If you had to pick one project so sum up the crypto market in 2020, it would have to be Yearn Finance. YFI is cementing its place as a DeFi infrastructure play in Apollo’s portfolio.

Matthew Harcourt

Matthew is an analyst at Apollo Capital. He contributes to the investment team with portfolio construction by researching and analysing the latest DeFi protocols.