DeFi is a sector that has seen gigantic growth in recent months. The gains provided by financial protocols have been overwhelming. Tokens that manage such projects are a key step in the decentralisation and security of DeFi. For this reason, Yearn.finance introduced the YFI token in July 2020.
On a wave of exponential growth, YFI quickly won hearts on the cryptocurrency exchange achieving a gigantic rise from a few tens of dollars to over $30,000. But first, let's explain what Yearn.finance is. yEarn, as it is also called, is an Ethereum-based protocol focused on providing profits from stablecoins, altcoins or Ethereum. The main feature of yEarn is Vaults. This is where users deposit cryptocurrencies and make money from them. Vaults are responsible for protocols that maximise profits and minimise the risk of losses. Vaults mainly focused on stablecoins but some time later started to support ETH, Bitcoin or Chainlink products. Such treatments are wise because there are very high transaction costs on Ethereum. When we pool users' capital into just one account we save on commissions.
The Earn feature is a truncated version of Vaults. It only supports stablecoins and Wrapped Bitcoin. However, the key idea for Yearn.finance is to decentralise the development of the DeFi protocol. Such a mechanism allows any user to monetise DeFi projects.
Challenges, however, exist before YFI. In a way, the project is still centralised around Andre Cronje, the brain of the project. When he said he wanted to leave the DeFi projects, the price of YFI started to fall heavily. It is nevertheless a very interesting protocol for creating unique decentralised financial products. Will Yearn.finance keep DeFi on the Ethereum network? We shall see.