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31 August 2020

YFI's Wild Weekend

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Yearn.Finance has all of the makings of a great crypto fairytale. Enigmatic founder? Check. Face-melting, growth? Yep. Great memes? Oh my. 

If it wasn’t already evident that Yearn Finance is crypto’s story of the year, this weekend cemented it. On Saturday, YFI’s price exceeded $37,000 with a $1B market cap, making Yearn.Finance the fastest unicorn of all-time. 

For those of you struggling to keep up, which is pretty much everyone including some of YFI holders, we’ll try to get you up to speed.

From Zero to Yearn

At the heart of the intrigue surrounding YFI, is founder Andre Cronje. On July 16th, was an under the radar lending aggregator with $8M in assets under management. On July 17th, Cronje released a blog post that laid out plans for transitioning control over the protocol to its users via the YFI governance token. All users had to do was lend assets to liquidity pools on either Curve or Balancer through and they would receive YFI tokens (aka yield-farming).

Cronje allocated zero tokens to himself and bypassed venture capital altogether. The beauty of this style of “fair launch” is that it gave anyone the opportunity to acquire these tokens essentially for free. In true crypto fashion, Cronje described these tokens as “valueless.”

These “valueless” tokens have gone from zero to over $1 billion, good for $30,000 per token. A billion dollars has been locked (TVL) in the protocol by yield-hungry users. As the protocol takes withdrawal and performance fees, it’s become a cash cow, generating over $700K in profits. These “valueless” YFI tokens give holders voting rights over the protocol. These rights can be used to direct a portion of's $700K+ revenues to token holders. At a minuscule supply of 30,000, this has some equating owning 1 YFI to owning 1/30,000th of a decentralized hedge fund.

Think about that. In just over a month, someone bootstrapped a billion dollar network simply by launching a token. The disruptive implications of this are profound and already have some calling for the “death of the crypto VC.” While that’s likely premature, it’s already led to more projects conducting fair launches and decentralizing outright from the beginning (see SushiSwap). A trend that is bound to evolve.

Another thing that happens when you give something away for free and it goes from zero to $1B? People get rich. Really rich. Given that most of the participants were already heavily embedded in the DeFi ecosystem, many have shifted their focus to working on full time. With an army of incentivized volunteers, is shipping new features like crazy. As with yearn’s yield-optimizing smart contracts, all of these new features are value accretive to YFI token holders.

Proceed with caution

Amidst the excitement, it’s important not to forget that Andre Cronje’s twitter bio reads, “I test in prod.” At the speed in which is advancing and growing, something could go wrong. We don’t have to look far back into crypto history to find examples of catastrophic bugs. After going from $8M to $1B TVL in a little over a month, investors should proceed with caution. Big trees fall hard.

Go deeper down the YFI rabbit hole

Still confused by what is actually doing? Jack and Watkins's piece on DeFi aggregation serves as a solid framework for understanding YFI’s role as a capital aggregator. Watkins’s “YFI and The Industrialization of Yield Farming” details the inner workings of YFI’s rise and outlook in-depth. There’s also more free info on our asset profile page.

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