The price of YFI token rose again and exceeded USD 13,000, and the price of a single token once again surpassed BTC. In fact, yearn.finance's governance token YFI has soared 32,000% since mid-July. Prior to the start of trading on July 18, YFI was only $32. The rapid growth of YFI will undoubtedly bring more attention to the continuous popularity of DeFi.
What is YFI and the project behind it?
According to YFI founder Andre Cronje, YFI's insurance consists of three core parts:
- Insurer Vault
- Insured Vault
- Claim governance
To become an insurer is very simple, no KYC or other is required, just deposit specific funds in the "Insurer's Bank". The first insurer's fund library is the yiUSDC library. Users deposit USDC and get yiUSDC. Anyone who deposits USDC in the treasury can become an insurer. What are the benefits of being an insurer? You can earn insurance start-up costs and weekly expenses paid by the insured.
Of course, the insurer receives the benefits, but also has to bear the obligation: if the claim is approved, USDC will be charged from the fund and paid to the claimant. In other words, yiUSDC not only represents the income of the insurer, but also represents the obligation of the insurer.
Similarly, there is no need for KYC. The insured deposits the insured funds into the "Insured's Treasury" to become an insured and obtain insurance services. For example, if a user wants to insure his CRV assets, then the user deposits it in the insured's treasury and generates yiCRV after depositing it. When depositing into the "Insured's Funds", a 0.1% start-up fee is required, and at the same time, 0.01% of the fee will be deducted every week.
The insured can withdraw CRV at any time, or deposit more CRV. The amount of user insurance is the amount of CRV deposited. This insurance service does not have a fixed period and has greater flexibility.
If a claim event occurs, the claim governance is required. In the above example, the insured filed a claim by staking yiCRV. Insurers use their yiUSDC to vote. During the 3-day voting period, 33% approved it and 25% rejected it.
Assuming that the claim is approved, yiCRV will be allocated to the insurer of yiUSDC, and USDC will be paid to the insured.
The design of this mechanism is relatively flexible. It can insure various assets, which can be basic assets (DAI) or compound assets (yDAI) per month.
Insurers can get insurance start-up costs and weekly costs, and they are also responsible for claims management. If the insurer refuses to make a valid claim, the insured will move its funds out. This means that the insurer is not profitable.
What drives the price of YFI
There are three key factors behind YFI's rise: the release of yInsure Finance, industry executives' support, and the continuous outbreak of DeFi.
(1) yInsure - decentralized financial insurance goes online
On August 17, the yEarn Finance development team announced the launch of a decentralized insurance service prototype yinsure.finance. The product will consist of three core parts: Insurer Vaults, Insured Vaults and Claim Governance. Through the insurance vault and claims management, it creates an insurance service on top of the DeFi agreement. Venture capitalists proposed earlier this month that insurance may become the next in popular DeFi category. yEarn Finance's entry into the relatively new market of on-chain insurance seems to be positively affecting the mood around YFI.
(2) Support from industry executives
When the experimental DeFi protocol Yam encountered a bug, the price of YFI dropped significantly. Since then, YFI quickly recovered and won the favor of well-known executives in the industry. On August 17, BitMEX CEO Arthur Hayes has been exploring various DeFi protocols such as Yam. Hayes wrote on Twitter excitedly, "My Metamask and I were very busy this morning, yEarn Let’s go!" There are quite a few other executives calling for YFI.
(3) Rapid growth of DeFi
On August 17, the total value locked in the entire DeFi ecosystem exceeded US$6.4 billion, and the total locked value of Maker, Aave and Curve exceeded US$1 billion. As mentioned earlier, the overall DeFi market is expanding, making the total value of yEarn Finance's locked positions reach 600 million U.S. dollars. A large amount of funds is staked on the yEarn Finance platform, which is a major catalyst for YFI. The launch of new products, the continuous expansion of the DeFi market, and the rapid growth of yEarn Finance's user base seem to be driving YFI prices.
Andre mainly uses the already reviewed Synthetix contract as the basis, but has not yet reviewed the YFI staking contract. So there may be some (or all) of the possibility of problems.
If the governance layer passes an unfavorable inflation schedule, it may lead to an outflow of platform liquidity, which will undoubtedly have a ripple effect on the entire ecosystem.
As there is no project token or any reward to be paid to Andre, he may finally decide to stop developing the agreement, which will cause the entire YFI ecosystem to lose "YFI’s Nakamoto".
Since YFI involves many smart contracts, it can achieve composable benefits. For example, through its liquidity mining, not only can you obtain YFI, but also have the opportunity to obtain CRV, BAL, etc. YFI has obtained high returns of composability, and it is also accompanied by high risks of composability. Potential risk of each component in this system may lead to systematic failures.