What is yearn.finance?

In the summer of 2020, decentralized finance (DeFi) took off. As of May 2021, the DeFi crypto market cap is over $152 billion.

Contributing to this growth is something called “yield farming,” or liquidity mining, which is (put simply) the process of optimizing your participation in DeFi liquidity pools to earn the highest yield. Protocol activity, token value, and interest between platforms fluctuates, sometimes dramatically, which creates the opportunity to actively search for the best option at any moment and move capital accordingly.

Yearn.finance, previously known as iearn.finance, designed an algorithm that automatically invests in DeFi protocols to maximise yields and generate as much interest as possible. Consider it a kind of algorithmic trading bot for interest accounts. Users deposit capital and yearn.finance does the market research and money movement behind the scenes to optimize returns.

Yearn.finance was created by Andre Cronje, a South African software developer. Since the summer boom, Cronje and his team have expanded the project, which as of January 2021 comprises a lending bot, a yield bot, an insurance protocol and a governance protocol. This governance protocol is powered by the YFI token which conveys voting rights to its holders, in effect decentralizing decision-making over yearn.finance development decisions.

What is YFI

In order to provide structure and decentralization to its governance, yearn.finance minted 30,000 YFI tokens to distribute to users. That was initially intended to be a firm limit, but a YIP (Yearn Improvement Proposal) to mint 6,666 more YFI tokens succeeded in early 2021.

The yearn.finance team wrote at the time of the token’s launch that YFI “has 0 financial value. There is no pre-mine, there is no sale.” Instead, “Earning YFI is simple, provide liquidity to one of the platforms above, stake the output tokens in the distribution contracts (we will provide an interface for this), and you will earn a (governance controlled) amount per day.”

But, like all decentralized projects, the fate of the token is out of their hands. The YFI token is used as part of yearn governance to decide on the future of the protocol, and there is also much speculation on the potential future revenue from the YFI tokens which fuels YFI’s price appreciation. DeFi enthusiasts see potential in yearn.finance’s model and want to be a part of it by buying YFI and its voting rights. yearn.finance also promotes development proposals from its community (which lead to YIPs and voting) which encourages a variety of folks to work towards its success.

Risk statement

Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset.

No securities regulatory authority or regulator in Canada has evaluated or endorsed the Crypto Contracts or any of the crypto assets made available through the platform. 

Wealthsimple has performed an assessment of whether YFI can be supported by Wealthsimple’s platform, including whether YFI is a security and/or a derivative and is being offered in compliance with securities and derivatives laws.

We evaluated yearn.finance based on publicly available information, including (but not limited to):

• The creation, governance, usage and design of yearn.finance, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created yearn.finance;
• The supply, demand, maturity, utility and liquidity of YFI;
• Material technical risks associated with yearn.finance, including any code defects, security breaches and other threats concerning yearn.finance and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them;
• Legal and regulatory risks associated with yearn.finance, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of YFI; and
• Statements made by regulators or securities regulatory authorities in Canada and other jurisdictions regarding whether YFI, or generally about whether the type of crypto asset, is a security and/or a derivative.

Wealthsimple monitors ongoing developments related to crypto assets available on its platform for significant changes that may affect Wealthsimple’s original assessment of those assets, including Wealthsimple’s assessment of the application of securities and derivatives laws. Any significant changes relating to YFI may result in changes to this Crypto Asset Statement and/or Wealthsimple’s ability to support YFI.

Like all other crypto assets, there are some general risks to investing in YFI. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Please review the Wealthsimple Crypto Product Risk Disclosure for additional discussion of general risks associated with the crypto assets made available through the platform.

We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading YFI. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.

Wealthsimple is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Investments Inc. dated December 18, 2023 (the Decision). 

The statutory rights of action for damages and rescission in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under securities legislation of other jurisdictions of Canada, do not apply in respect of this Crypto Asset Statement to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.

 

Last updated: January 1, 2024