Yearn Finance Newsletter #1
Week Ending September 6th, 2020
Welcome to the very first Yearn Finance Newsletter discussing all things related to the Yearn ecosystem. Our aim with this newsletter is to keep the Yearn and the wider crypto community informed of latest news, including product launches, governance changes, and ecosystem updates.
- yETH Vault Launch
- Delegated Funding DAO Vaults Announcement
- yInsure Product Launch
- Governance Updates (YIPs)
- Ecosystem Update & Stats
yETH Vault Launch
The yETH vault launched on September 1st and had approximately 342k ETH locked at its peak. This is the first yVault initially conceived by a community member. yVaults assess a 5% performance fee whenever the harvest() function is called. 10% of this fee (0.5%) goes to the strategy creator and the remaining 4.5% goes to governance and is distributed to YFI stakeholders. Developers can now propose their own strategies on the Yearn governance forum (https://gov.yearn.finance) and if the community approves their proposal it will be implemented as a new strategy to the yVault. Developers will earn fees for introducing the strategy.
Here’s how yETH works: First, ETH is deposited into the yETH vault and is used to create a CDP at MakerDAO to mint DAI. By September 3rd, ~70m DAI was minted and deposits were capped due to constraints on the DAI debt ceiling and to balance the mix between vault profits and overall risk.
The DAI minted from the vault is deposited into the yDAI vault which deposits DAI into curve.finance and yield farms the Curve DAO token (CRV). A portion of the CRV farmed is periodically sold, while the unsold portion is deposited back into the gauge at curve. Profits from the CRV sales are used to purchase additional ETH, which goes back into the yETH vault. yETH vault depositors have a claim on the excess ETH purchased.
The current yETH strategy targets a collateralization ratio of 200% for the CDP and it periodically queries Maker’s Oracle Security Module (OSM). Therefore, the strategy is able to see the future oracle price 1 hour before price updates are made. If the future oracle price will result in a collateralization ratio of less than 200% the yVault automatically begins paying down DAI to target the 200% ratio. It does this by burning yDAI and redeeming DAI from the curve.finance pool. Shortly after yETH’s launch, we saw this mechanism in action as the price of ETH declined from a peak of $490 to approximately $309 as of September 5th causing 3 rebalances thus far. The vault successfully managed a ~36% decline in the price of ETH without any adverse effects to user funds. The vault is currently in the process of being unwound (DAI paid off) in order to implement new improvements and optimizations, not because of excessive risk. A new v2 yETH strategy will launch once this process is complete.
More details about the mechanics of the yETH vault can be found in Andre Cronje’s latest medium post.
Delegated Funding DAO Vault
A new product announcement was made on August 29th introducing delegated funding DAO vaults. YFI holders provide funding to teams seeking capital. This works the same way as a delegated vault (collateral used to draw stablecoins) and lenders receive a LP share based on their contribution. Teams must apply for funding by creating a gitcoin grants page and a proposal on the Yearn governance forum. If the forum signals sufficient approval a formal vote will be conducted. If the vote is successful the team will be added to the DAO vault. Governance also sets weekly/monthly/yearly credit limits that the team can access from the vault. DAOs can repay the credit on their own terms, and if they wish in other tokens accepted as collateral. Any profits are shared between vault LPs. DAO vaults are in a preliminary stage so do not deposit any funds yet. Additional details will be provided in the future.
yInsure Product Launch
A new tokenized pool insurance offering, underwritten by Nexus Mutual, launched on August 31st. As of September 6th there are ~4.72m DAI available to be purchased as cover between Balancer and Synthetix. Other protocols (AAVE, Compound, Curve, and Yearn) will have cover available to be purchased in the future.
Insurees can obtain coverage on the dollar amount of their assets and insurers receive initiation fees (0.1%) and weekly premiums (0.01%) from insurees in return for providing insurance coverage. Insurees deposit the assets they desire to receive insurance on (e.g., USDT) and in return receive yiUSDT, representing their deposit. Assets deposited for insurance coverage can be withdrawn at any time by insurees.
Insurers deposit USDC and in return receive yiUSDC; currently, only USDC is accepted as collateral used to insure claimants. To submit a claim insurees stake the tokens they received at deposit (yiUSDT) and insurers vote on the validity of the claim. If the claim is approved insures receive USDC from the capital pool and insurers receive the yiUSDT from insurees. If insurers deny valid claims insurees will no longer use the system, and ultimately insurers will no longer receive any initiation fees or on-going premiums.
Governance Updates (YIPs)
Upgrade Treasury vault, gitcoin grants, and yCRV conversions
YIP to reimburse Yearn for gas costs incurred (as high as $25k on 9/2/20) before profits are distributed to the yVault Strategist and ultimately YFI stakeholders. 1% of yVault rewards are funneled towards gitcoin grants that benefit the overall Ethereum community. Changes the Treasury Vault contract infrastructure in order to convert non-yCRV assets (YFI, WETH, CRV, etc.) into yCRV to be distributed to YFI stakeholders.
This YIP was unanimously approved on September 5th and will be implemented shortly.
YIP-44: Improve YIP Categories
Added new statuses to YIPs in order to better manage implementation of YIPs, including allowing proposers to withdraw YIPs if facts materially change after the YIP was initially proposed.
Approved and implemented.
Change the 5% Harvesting Fee to Performance Fee on Profits
On-going discussion regarding altering the current fee structure for yVaults. Currently, the yVaults charge a 5% gas subsidization fee whenever the harvest() function is called. This YIP would change the fee structure to be 5% of profits realized, not excess gas incurred, for yVaults.
Creation of the yETH-YFI Bull Strategy
On-going discussion to create a 50/50 ETH/YFI Uniswap liquidity pool. The pool would target a 50% split between ETH/YFI, while accruing trading fees and potentially increasing the balance of both assets in the pool. The pool would also act as a support for the yETH vault, and the ETH in the pool could be deposited to the yETH vault to protect against potential liquidations.
Ecosystem Update & Stats
Note: this doesn’t represent a formal audit engagement between Yearn and DeFi Safety.
Want yETH vault to reopen? Lobby Curve DAO to reduce parameter A to 500 in the curve.finance yPool
We invite developers to conceive and propose any new yVault strategies or potential product offerings to the governance forum. Introduce strategies and get paid for your work! We are also always looking for security auditors to help us identify vulnerabilities and exploits. Please reach out to us if you are interested in assisting our security efforts or any business development opportunities at firstname.lastname@example.org.