DeFi Ethereum

Yearn’s LINK yVaults Are Good News for Ethereum, DeFi, & Chainlink

This tie-up brings two of DeFi's most exciting projects, Yearn and Chainlink, together in a mutualistic way. It's an exciting meld, and here's why.
Pinterest LinkedIn Tumblr, for “You Earn,” kicked the decentralized finance sector’s yield farming craze into high gear back in June when it rolled out new automated yield strategies around rising DeFi governance tokens like COMP, CRV, and BAL.

Suffice to say, these strategies have proven to be a big hit among more than a few Ethereum users, and Yearn’s since evolved and gained popularity at an astonishing rate. One of the project’s first big evolutions-on-the-fly was the introduction of YFI, Yearn’s own governance token.

Through YFI, the fledgling Yearn community has been able to collaborate with the platform’s wiz builder, Andre Cronje, to advance and optimize the project in new directions.

The community passed its first YFI governance proposal late last month. Fast forward two weeks and 32 proposals later, and Yearn’s stakeholders just passed “YIP-33: Add LINK to yVaults.” This tie-up brings two of DeFi’s most exciting projects, Yearn and Chainlink, together in a mutualistic way. It’s an exciting meld, and here’s why.

Yearn LINKS Us Up

Yearn just introduced a new “delegated vault” system. Simply put, and using the example of the system’s first supported token, LINK, the vault’s yield process works like this:

  • Provide liquidity in the form of LINK
  • Use that LINK liquidity as collateral via depositing into the Aave protocol
  • Borrow stablecoins, e.g. USDC
  • Deposit said USDC (etc.) into yVault to generate APY returns
  • USDC profits sold for LINK, LINK accordingly grows in vault 

And the best part? All those steps above are automated by Yearn, which makes the process vastly easier and faster than doing it manually. That’s the power of composability among Ethereum’s decentralized applications.

As such, one of the reasons the new LINK yVault solution is so interesting is because it shows 1) what a young Yearn can already do in the here and now, and 2) the kinds of promising solutions Yearn will be putting out in the future. It’s a good time to be a yield farmer, so it seems.

Additionally, for Chainlink the LINK yVault is yet another validating advancement, as YFI voters chose LINK first ahead of other tokens. LINK is the most popular, in-demand, and liquid ERC20 token in the space as things stand today, and the yield farming possibilities of Yearn’s yVault system makes LINK that much more useful and desirable.

Conversely, the LINK embrace can bring in an influx of new liquidity to Yearn. It’s a win-win situation if the cryptoeconomy ever saw one.

When LINK in MakerDAO?

Lending and stablecoin protocol MakerDAO is the largest DeFi application, currently having +$1.3 billion in assets under management according to DeFi Pulse, whereas Yearn stands as the 9th largest with $165 million in total value locked.

But while Yearn is young, iterates fast, and embraced LINK early on, MakerDAO is older and steadier and has yet to vote in LINK as a supported Maker collateral type.

Of course, there were discussions back in the spring to do just that. Maker’s Dai stablecoin has been trading above its $1 USD peg for a considerable portion of 2020, which could increasingly erode confidence in the token. In April, ParaFi Capital proposed adding LINK as a MakerDAO collateral type, with the idea being that this could lead to a sizeable Dai issuance and more sell pressure to push the token toward $1.

To date, nothing’s happened on this front, as LINK still hasn’t been voted in by MakerDAO’s MKR holders. But that doesn’t it mean it won’t happen, either. As Chainlink community ambassador ChainLinkGod.eth put it a few months ago in a forum discussion about onboarding LINK:

“LINK would be an obvious collateral addition to Maker. It is the largest and most liquid non-stablecoin ERC20 … and there is no shortage of linkies who are willing to go leveraged long on LINK. I think Aave is a prime example of that, which I have personally used myself. Behind only Ethereans, Linkies use DeFi applications more than any other community I know of.”

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William M. Peaster is a professional writer and editor who specializes in the Ethereum, Dai, and Bitcoin beats in the cryptoeconomy. He's appeared in Blockonomi, Binance Academy, Bitsonline, and more. He enjoys tracking smart contracts, DAOs, dApps, and the Lightning Network. He's learning Solidity, too! Contact him on Telegram at @wmpeaster

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