YEARN + $YFI Revenue Model Explained

After reading this you will understand the current YEARN revenue model and why $YFI is currently the most undervalued cryptocurrency asset in existence.

It is funny we still have to write that sentence given:

A.) YEARN is extremely profitable.

B.) YEARN has hundreds of millions in TVL.

And it's only been less than a month!

There's a reason why the saying we coined, created and copyrighted in all jurisdictions and dimensions and chains and forks is going up faster than the $YFI market cap...

Few understand.

There are tons and tons of blockchain products with millions of dollars in venture capital, a few lines of code and a market cap 10x what $YFI is.

Don't let the poor UI spook you son... there is and will only ever be one YEARN.

Let's jump in.

How does YEARN generate money?

The entire YEARN ecosystem is a reward generating, profit making machine!

Rewards include:

  • yearn.finance interest

  • COMP from compound

  • CRV from curve.fi

  • curve.fi/y trading fees

  • ytrade.finance leverage fees and liquidation bonuses

  • yswap.exchange underlying system fees

  • yliquidate.finance liquidation bonuses

  • system dust (unassigned interest or fees)

We are working on an post explaining just how big the Y CRV Pool is for $YFI but in the meantime this article will focus on just two core products in use right now.

Let's look at:

  • Earn - Deposit and automatically earn the best interest rate possible

  • Vaults - Deposit and automatically use advanced strategies for higher risk and return

The fee passed onto the consumer is 0.5% for withdrawals and 5% for gas subsidization (when using Vaults).

Editor's update 8/19/20: Vault fees have been clarified by Andre in this Twitter thread. Those who went to private school can review the smart contract itself here.

Essentially, there is a 5% performance fee on subsidized gas and "Only when subsidized gas events occur."

Low IQ example: This isn't a fee where if you make 100% APY your net reward is 95% APY. Rather whenever the Vault spends gas for a transaction (a harvest, for example), you pay 5% of that.

But remember that transactions are grouped and everyone else is paying their part...

Oh my...

Effective fee per user ends up making Vaults one of the most gas-efficient (if not the MOST efficient) DeFi protocol available.

You can think of it as a 0.5% management fee and 5% processing fee.

Here's an example using the EARN product (no gas subsidization):

On Monday Karen deposits 1000 $USDC into the EARN and receives 999 $yUSDC (interest bearing $USDC).

On Tuesday Karen withdrawals the entire balance and pays a 0.5% fee of 4.995 $yUSDC.

This fee is then distributed back to $YEARN governance.

In this example Karen did not make a good investment choice and lost money because she did not keep her balance in EARN long enough.

Now it's time for the fun part... VAULTS.

Vaults follow a strategy designed to maximize your returns and minimize your loss all while charging a low fee.

This strategy changes depending on market conditions and the asset in the vault.

Let's use the yCRV vault as an example:

The $yCRV deposited into the vault is deployed using the CurveYCRV strategy that harvests $CRV and sells it for more $yCRV.

Each time the harvest happens a 5% gas subsidization fee is charged and then sent back to YEARN governance.

Harvest = selling the farmed asset back for the main asset

With VAULTS YEARN will earn fees each time someone withdrawals (0.5%) and then every time a harvest happens (5%).

There is no time period or set amount of times harvesting will occur. You can however watch this occur by finding the vault on Feel-the-Yearn and getting alerts via Etherscan.

Current yCRV Vault Stats:

  • AUM 29,207,503 $yCRV

  • APY 394.58%

  • 11,898 $yCRV harvested

If everyone were to withdrawal their money from the yCRV this instant, it would result in 146,037.52 $yCRV net revenue for YEARN.

Next we need to add 595.9 $yCRV (11,898 x .05 gas subsidization fee)

So total revenue on the yCRV VAULT if it ended today would be 146,632.42 $yCRV or approximately $153,964.04 USD.

Remember that's only a hypothetical situation. The APY for the vault is 394.58% currently making it one of the best returns you'll find in DeFi.

The actual revenue generated from the yCRV Vault alone will be many orders of magnitude higher than the figure we posted.

Summary:

YEARN generates revenue through withdrawal (0.5% of total) and gas subsidization fees (5% of harvest aka profits).

These fees can be changed or modified at any time through governance.

New streams of revenue will be generated through the release of additional vaults like $SNX and products like leveraged stablecoins.

What happens to the money?

Now you understand that after only a few weeks YEARN is a money-making machine!

But you must be wondering where is the money going and how does it benefit $YFI holders?

This part is confusing for many and possibly the reason why the market cap for $YFI is so terribly low.

First it's vital to remember that there was no pre-mine or team allocation for $YFI. Andre had been building and funding this thing almost completely alone.

The immediate answer was to mint more $YFI and distribute some to Andre for his efforts and continued work on YEARN. This however was rejected by the community and ultimately turned out to be the right decision at the time (read more).

Few understand: There is no more $YFI coming. You can buy it on an exchange or Uniswap. It cannot be farmed. There are 30,000 and we sincerely doubt any more will ever be minted.

If no more $YFI can be minted - how do we fund development and a better UI (hint hint)?

The community (one of $YFI's greatest strengths) voted for YIP-36 which determined YEARN would use system rewards (fees) as operational capital.

Specifically:

  • 100% of rewards collected by the system are sent directly to the multisig treasury.

  • The treasury maintains a buffer equivalent to $500,000 USD.

  • All further rewards are directed and distributed to $YFI staked in the governance pool.

Effectively this means the "company" will hold a $500,000 USD balance to fund activities such as development, UI upgrades (hint hint), security audits, and guccis for Andre.

After the balance threshold is reached all further rewards (earnings) are distributed to $YFI staked in the governance pool.

Editor's note 8/23/20: For degens who need pictures, @DeFinnTheFarmer made this wonderful infographic for you to hopefully understand big-brain concepts like this.

(Click on it to make it bigger)

Where is the multisig treasury?

Treasury Address: 0xfeb4acf3df3cdea7399794d0869ef76a6efaff52

You can also track everything happening in the treasury using Zerion.

You'll notice deposits coming in through fees collected via withdrawals and gas subsidization.

At the time of writing the current balance is over $190,000 USD.

It's important to note that over 160,000 $yCRV was deployed into the yCRV Vault. The treasury is using the same features offered to the public and will be paying the same fees on harvest and withdrawal. The treasury will also be earning the same APY.

Depending on market conditions, the treasury balance will likely exceed $500,000 by the end of the month. Then distributions of system rewards can begin.

Since the treasury will continue to use VAULTS and earn a positive return (aka grow), it's possible that the treasury balance does not go below the $500,000 USD threshold.

This would permanently funnel all future rewards to $YFI holders.

Distribution of Rewards to $YFI Holders

After the treasury reaches the $500,000 USD threshold, system rewards (fees) will then be sent directly to the governance contract.

Governance Address: 0xBa37B002AbaFDd8E89a1995dA52740bbC013D992

This has not happened yet, so the distribution method is unclear and will likely be determined by a community vote shortly after the treasury is full.

Previously $YFI had to be burned in order to claim your rewards, but this was overturned by YIP-32.

The current method for claiming rewards is as follows:

  1. Stake $YFI to governance via YGOV

  2. Vote in a YIP (locks $YFI for 3-days)

  3. Unstake and claim rewards $yCRV

Again we are not certain this will be the same method used when reward distribution begins.

However whenever distribution starts, it's almost guaranteed that the total supply of $YFI will be locked into governance.

Since August 13 the treasury balance has gone from $0 to over $200,000 USD.

Extrapolate that for:

  • The month, the year and the year after that

  • Upgrades (better UI, insurance)

  • New products (leveraged stablecoins, more vaults)

  • The growth of DeFi + tokenized BTC

And then just try to put a number on the amount of rewards you'll earn with just 1/30000th...

Summary:

YEARN generates rewards through withdrawal and gas subsidization fees.

Rewards are sent to the treasury until it reaches or dips below the $500,000 USD cap.

Rewards are then sent to governance and distributed to staked $YFI.

YEARN is a profitable DeFi protocol that can fund operations and growth. YEARN does not need to raise money by minting more $YFI and diluting the pool.

After less than thirty days, it's nothing short of remarkable to see product-market-fit and profitability achieved so quickly while having unlimited potential for scale.

Now let's look at how YEARN + $YFI stack up to the competition.

YEARN compared to others:

The great Spencer Noon must have worked for McKinsey where they taught him to make charts like this.

Most people will probably look at it and see oh yay YEARN is the highest, good for them.

But it's wrong so we made an easier one.

We made a different chart that shows the fully diluted market cap and TVL in millions and then the cap / tvl.

Hint... the yellow line shows it's undervalued

We didn't add Curve to the chart because it's just stupid.

And then again one could argue that TVL and whoever created it is just as stupid as the Curve fully diluted market cap because it's a vanity metric that means nothing when money in a yVAULT also contributes to Curve TVL.

But do you know what's not a vanity metric?

Revenue.

This is the blockchain after all. You can't pull a wirecard and fake it.

$YFI vs $ZRX vs $LRC

Here's a chart we made using data from good folks at Token Terminal who will be adding $YFI to their database soon.

You can see:

The $YFI marketcap is 682x revenue versus, $ZRX (817x) and $LRC (1177x).

Already this feels substantial!

But...

Oh my...

We used the ANNUALIZED REVENUE for ZRX and LRC.

And only used three days of $YFI revenue (200k).

It's crazy that $LRC and $ZRX actually generate significantly less revenue than the Chipotle down the street.

Let's use the most conservative estimate possible and estimate the $YFI annualized revenue to be $4,800,000 (400k/mo).

Here's what the chart looks like now:

$YFI goes from being valued at 682x annualized revenue to only 28.42x.

The current price of $YFI and its market cap represent the lowest valuation in the short history of cryptocurrency, a market that loves to make completely irrational bets on things like Yams and coins for dentists.

Summary:

YEARN is an ultra profitable, ultra revenue generating, ultra lean startup perfectly positioned to capitalize on the growth of DeFi.

Soon $YFI holders will see reward distributions that will far exceed even the best most degenerate farming opportunities.

The rocket ship has already launched, it just hasn't left orbit yet.

Get your ticket before it's too late.

There are only 30,000 $YFI. We aren't minting any more. We don't have to.

Few understand.

@learn2yearn

Next steps:

Read more about the BULL CASE for $YFI

Less than 24 hours after we posted this... the revenue model just got a major upgrade!

Donate our $YFI buying fund: 0x41A3E688290EfF2bd10c160151c297A23B42953D. It's the best way to keep us pumping our analysis and articles like this one!