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Yearn.finance is a set of protocols that runs on the Ethereum blockchain. These allow users to enhance their crypto earnings through various lending and trading services.

At root, yearn.finance is an attempt to create a decentralized finance (DEFI) service. It offers code that replaces the traditional function of financial intermediaries, such as banks, brokerages, and building societies. Hence, the protocols themselves act as financial custodians, negating the need for large overheads.

What comprises the Yearn.Finance platform?

The yearn.finance platform breaks down into several subunits, each of which performs a particular function:

  • APY - APY is an updatable data table that displays the interest rate available to users across a variety of lending types. It shows them the amount that they can expect to pay for various services.
  • Vaults - Vaults are protocols designs to enable owners to generate returns from decentralized finance projects
  • Zap - This service allows users to bundle multiple trades into a single click, reducing labor costs.
  • Earn - Finally, Earn allows users to identify the highest interest rate available by lending a particular asset.

The yearn.finance platform attracts customers by offering them a way to earn additional tokens by engaging in a variety of activities across both the Curve and Balancer trading platforms. People typically refer to these strategies as “yield farming”. It means that users make their cryptocurrency holdings available on capital markets. They do so to unlock additional cryptocurrencies in the future. As with regular investment vehicles, the more assets users “lock-up” in the protocols, the greater the number of tokens they get in reward.

How does Yearn.Finance operate?

The purpose of the yearn.finance platform is to enable users to lend or trade their cryptocurrency and, hopefully, make a return on it.

Many uses begin with Yearn as this is a good way for discovering what sort of return they can expect for lending out money. The tool works by crawling a variety of lending protocols to see which offers the users the best rate. These then deposit various coins and then lend them out at the quoted rates.

APY (which stands for “annual percentage yield”) is a tool that Yearn users use to determine how much they can expect to get in return on an annualized basis for a given amount of capital.

Vaults are a little bit more complicated. You can think of them as a decentralized form of mutual funds where you farm out portfolio management to a third party. Vaults are actively managed, meaning that you entrust your coins to real people instead of just getting an algorithm to manage your capital for you. Currently, there are only a limited number of Vault strategies available. However, that number is growing.

Lastly, some users use Zap for lending and trading. This tool is more a user-interface improvement than anything else, allowing them to complete multiple actions across the Ethereum blockchain and various other platforms, such as Curve, associated with it.

Yearn.finance is an exotic topic if you haven’t come across it before. But Unblocktalent plans to keep on explaining the world of DEFI in full detail.


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Christopher Gondek Co-founder of OriginStamp.com

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