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Yearn Overhauls Fee Structure in V2

Yearn Finance, the yield farming aggregator,  dropped its version two (V2) on Jan. 17, with a slew of changes including a mechanism to funnel staking fees to the protocol’s treasury, meant to make development sustainable in the long term.

Yearn’s much anticipated V2 comes with a new fee structure which, while maintaining the same overall fee level of roughly 20%, eliminates the project’s withdrawal fee, adds a management fee (2%), and increases the performance fee (taken as a percentage of the yield generated on behalf of the user) to 73% from 17%. 

With the new fee model, “incentives are better aligned as Yearn earns most of its fees and Users pay most of their fees only if the Vaults are performing well,” the proposal said.

The proposal’s creators hope the changes will retain users and generate a predictable revenue stream rather than the bulk of revenue occuring during a user’s unpredictable withdrawal period.

Flurry of Upgrades

Yearn has made a flurry of upgrades in the past week. Last week included the addition of leverage to the protocol, a founder’s rant, and collaborator Cream Finance shipping undercollateralized lending

V2 also allows single vaults to employ multiple yield farming strategies. The change aims to mitigate a feedback loop generated by Yearn’s own success: a vault’s high yield attracts capital, which then brings down the originally attractive yields. The protocol can now allocate a single vault’s capital across strategies.

1k Additional YFI

Yearn’s governance forum also had Twitter rocking as people debated whether minting 1,000 additional tokens, worth over $30M, would hurt or help the protocol. The additional tokens would break the 30,000 hard cap supply meme, as well as cast doubt on potential future inflationary events, though it would also allow core developers, who missed out on the initial token distribution event, to capitalize on the project’s success

A compromise emerged as the yield aggregator’s community passed the Yearn improvement proposal (YIP-56), also known as the Buyback and Build Yearn (BABY) proposal. With YIP-56 YFI staking rewards will now be used to buyback YFI tokens and deposit them continuously in the newly established Operations Fund. The fund aims to establish a consistent treasury to fund protocol operations indefinitely. 

Yearn Operation Spend, November 2020

Messari Senior Researcher Ryan Watkins, an author of YIP-56, said in an interview, “the community passing the BABY proposal is a great step in the direction towards properly capitalizing Yearn’s treasury in order to compensate core contributors well.”

Curve Finance Integration

Yet another change in the Yearn ecosystem is the development of permissionless pools in collaboration with Curve Finance. Permissionless pools, a key feature of exchanges like Uniswap, mean users can themselves create a pool to swap tokens (in the case of Uniswap, a trading pair). As Curve launched to exchange stablecoins (of which there are only a handful broadly used), there hasn’t been major demand for permissionless functionality. As more instances of algorithmic stablecoins emerge however, allowing users to create their own pools adds a dynamism to the protocol which Yearn founder Andre Cronje hints will increase Curve’s fee revenue and also total value locked.

Users can also create pools with tokenized forms of Bitcoin and combine them with Curve’s base pool of renBTC, wBTC, and SBTC, again, allowing for bootstrapped liquidity for new BTC tokens.

Exclusive Access

Watkins told The Defiant, V2 adds “exclusive integrations with Yearn ecosystem partners like Cream which provide Yearn competitive advantages other yield aggregators do not have.” 

These integrations have the potential to give users access to capital pools that normal users, even whales, can’t access.

Change is always afoot with Yearn. No doubt YFI holders are eyeing the token’s all-time high of $43,000, achieved on September 12, as a key resistance level. YFI is currently hovering around $35,000, up 18% on the week.

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