This was originally shared by Maple Leaf Capital on twitter. We've shared it here to increase visibility. Minor edits have been made to help with the flow.
Any summary provided is the opinion of LearnYearn and does not reflect what Maple Leaf Capital wrote. We probably interpreted things incorrectly. Our combined IQ is much lower than MLC's.
At its very core, @AndreCronjeTech built a platform to pool capital (such that fixed cost / tx minimized & rotational speed to highest return opp. maximized) and automatically allocate into protocols to maximize delta-neutral (i.e. non-directional) profits.
Whatever such yield / profit is higher than outright lending to likes of COMP / AAVE, the premium fundamentally comes from:
(a) speculative capital supporting token inflation emission on various protocols
(b) speculative capital levering up to chase more gains
For any typical speculators, capturing such ephemeral excess premiums has 3 pain points:
(a) late to party, don’t know where to look (b) small capital base, fixed cost of participation too high (c) not tech-savvy enough, can’t vet smart-contract risk.
With the $YFI platform and currently @AndreCronjeTech as the sole strategy provider, however, anyone can now participate in such excess premium-capture almost immediately, with much less fixed cost (shared by the pool), and somewhat vetted smart-contract risk.
re: PMF, let’s be honest, there is no better than actively seeks to make people more $ – other PMFs include permissionless list & flip shitcoins (Uniswap), degen gamble (CEX), help degens make decisions (Nansen, Dune, etc), and help projects build (ANT, Graph, etc).
In solving such 3 pain points, $YFI should be able to continue on without inflation, while extracting fees from active users’ deployed AUM.
The larger the platform is and longer it’s been running, the more users may also trust it.
Effectively, $YFI (ownership of YEARN) has the potential to become the General Partner stake of an asset management platform like 2-Sigma / Millennium.
Today @AndreCronjeTech is the sole portfolio manager, with all the LPs being limited partners contributing capital.
As I have hinted at before, I am a huge fan of this segment; each projects today ($MLN / Melon, Set Protocol, $DHT / dHedge, and $YFI) tackles it in a slightly different flavor, but $YFI really stands out as a non-directional / arbitrage-focused, automated manager platform.
In spirit, the $YFI platform would look a lot like RenTech (fully automated), w/ platform approach of multi-strat / pods with siloed capital like 2-sigma, Millennium, and Citadel.
Its approach to returns is very different than the likes of directional manager platforms.
If YEARN figures out a good incentive structure amongst GP ($YFI holder), Strategy provider (@AndreCronjeTech today, but many more in the future), and capital providers (everyone in yX pools) while cross-chain into other layer-1s become enabled, L2 + futures on ETH becomes enabled, and $YFI platform now more seamlessly integrated w/ fiat on-ramps / B2C apps like Coinbase, argent, etc w/ fully vetted code...
YEARN will be able to automatically seek highest yields in any chains and beyond what’s available today (basis-trades, flash-loan arbs, cross-chain arbs, multi-leg arbs, etc), with potential as the safest + largest pools w/ lowest cost (given scale = lowest cost / tx).
All enabled by a long list of smart contract engineers acting as strategy provider alongside @AndreCronjeTech (who employs a team w/ help of Framework to build out platform), all of which compensated by % of fee & potentially inflation.
Whereby for any funds or individuals just looking to park assets but earn high yield – this could potentially be the best venue to do so given it’s the most painless, cost-efficient, but highest-return generating venue.
To use a real-world analogy, one with a meager 1,000 USD balance effectively now gains access as an LP to the largest, most sophisticated yield-maximizing pods within Millennium / RenTech all with a click of a button.
Imagine being on the same playing field as @zhusu you don’t need to even know how it works, but when banks offer you <1%, you are now getting 20-150% return annualized depending on what time it is.
Tell me, would you be happy to pay 0.1% for it?
How big would the protocol that offers this service be worth if one is a crypto-fund, or any fund for that matter, when looking for discretionary bets, why not just park the SoV of choice (be it USD, BTC, or ETH) in the interim in $YFI?
If it’s proven to be bullet-proof and safe, isn’t it better than just having it sit idly?
The TVL within #Defi could go up multiple-fold, I sometimes wonder if such TVL will be deployed directly just into protocols, or it’d be more of a tiered process of something like Coinbase – YFI – Aave.
I think most users (even funds) would be happy to pay a small fee.
So it’s of no surprise that some of the brightest guys in #DeFi are all over this. @AndreCronjeTech by building a product he himself wants to use might have accidentally stumbled upon a goldmine with promises of value-capture and scaling far beyond what he 1st imagined.
2 of the largest being keyman risk and smart contract risk; others include whether governance / progress on token-economics move too slowly, whether the strategies can just be forked / replicated by other aggregators, etc.
Also there is whether ~120-150 mm USD market cap is too rich vs. fees generated, how the asset would perform when the bubble pops (thereby compressing excess spread), and can @AndreCronjeTech really build a firm to realize this vision (if mine is even right at all).
But here’s my view –
There is absolutely no doubt in my mind that an automated, non-directional / arb-centric platform that maximizes returns safely for a permissionless asset pool has tremendous value (both today and in the next 10-20 years).
$YFI is the 1st (and perhaps accidental) valid attempt that has shown real traction amidst this #DeFi cycle.
You want to back the fastest horse in the race with the most supportive and smartest community that helps the team iterate – important because… it helps w/ capturing the most premium (while competitors’ focus may also be elsewhere), avoiding mistakes, iterating token model until it makes sense, pivoting when things don’t work out, has a backstop when there are hiccups, etc.
TVL of DeFi goes to 10bn by YE$YFI captures 2bn by generating an interim 20% ROI and takes ~5% of it (1% of TVL)That's 20mm of fees just on $ETH on ~ 120mm market cap exc - rewards
BlackRock has 7.5 Trillion of asset undermanagement. If $YFI ever scales to a valid contender way down the road on multi-chain, multi-asset, bridging #DeFi and the real world, and allowing literally anyone to participate, sky is truly the limit.
I’ll still say $YFI harbors significant risk as VC play, but honestly if tokens with absolutely 0 PMF and 0 moral compass, and 0 intention to change can trade in the billions while #DeFi can only get crazier in the next 3-6 months, seems like an interesting R:R bet.
Catalysts pending for $CRV launch + more strategies around $ETH scaling via V2 + Cross-chain. Still not listed in mainstream exchanges, % of overall #DeFi market cap still small, and potential token-economics rework.
Further meme value when 1 $YFI > 1 $BTC @ 350 mm + mkt cap.
YEARN accidentally found product-market-fit by being the easiest way for anyone to access the best strategies in DeFi.
If the best strategies in DeFi are the strength of YEARN, then continuing to build as an automated, non-directional, arbitrage platform where $YFI owners are general partners makes sense.
Following this logic YEARN would not be in direct competition with emerging products such as Set Protocol.
Everything harbors on incentive structures that properly:
Compensates and ties Andre to YEARN / $YFI
Funding mechanisms for development, growth and other costs
Compensates $YFI holders, strategy (managers) and users
Re: Venture Capital
We believe for core DeFi users (early adopters), that access to the best DeFi investments (pre-launch, pre-sales, investments) remains the number one problem. They are able to find the best DeFi strategies, but this does not give them a seat at the table.
Core DeFi users understand the risk / reward for such investments and will be eager to help fund and promote the best new DeFi protocols.
This is beneficial to $YFI and to protocols that take an investment from $YFI.
We hate to use this term, but it's almost like doing an "influencer" round... if you have the power of $YFI behind it you will be getting the largest possible reach to your core audience immediately. This type of awareness and trust cannot be bought.
$YFI leading investments into the best of DeFi, cuts off CeFi.
Someone much smarter than us should submit a proposal immediately with a compensation structure for users (investors), managers (controller), and $YFI holders.
The market's appetite for something like this is very strong at the moment.
Launching the yVCVAULT will bring more of the best of DeFi into $YFI and amplify all messaging for future products and releases.
Edit for clarity: We are not suggesting that $YFI / YEARN become some giant VC thing. We want the VCVault as a strategy implemented immediately to suck in the best of DeFi to $YFI. Ultra high risk, not for everyone.