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DeFi Yearn Finance DeFi Digest OKEx Insights

Yearn Finance launches new LINK vault, hints at future developments

2021.06.09 Matthew Lam

OKEx Insights looks into Yearn Finance's latest LINK vault, as well as the protocol's future — DeFi Digest

This week, the decentralized finance sector sold off alongside the wider cryptocurrency market. The total value locked in DeFi protocols dropped from $62.19 billion to $58.9 billion, as of the time of this writing. At the same time, the total borrowing volume rose by 3% to $17.21 billion. Aave led the market with a 15% share of the sector's total value as well as the lending sphere with a 32% market share.

Trading on decentralized exchanges plunged this week as average weekly trading volumes plummeted from $7.76 billion to $4.06 billion. At the same time, SushiSwap regained its position as the largest liquidity pool.

CategoryKey statisticsAmountWeekly % change
OverallTotal value locked (USD)$58.9 billion-6%
Market dominance (%)Aave (15%)
LendingTotal borrowing volume$17.21 billion3%
Market dominance (%)Aave (32%)
DEXsWeekly avg. trading vol.$4.06 billion-47%
Market dominance (%)Uniswap (27%)
Yield farmingLargest liquidity poolSushiSwap ($2.06 billion)
The weekly average DEX trading volume dropped 47%. Source: DeFi Pulse and DeBank

Yearn Finance launches LINK vault

This week, the Yearn Finance team launched its LINK yVault, which offers direct yield-farming opportunities for Chainlink's LINK. 

Prior to the launch of the LINK yVault, Yearn Finance's users could gain indirect exposure to LINK through the v2 Curve LINK Pool yVault. Users could supply their liquidity to Curve Finance's LINK/sLINK pool and earn CRV as a reward. Now, the LINK yVault offers direct LINK exposure.

The latest LINK yVault in Yearn Finance also offers more active strategies and diversification benefits than the v2 Curve LINK Pool yVault. The v2 Curve LINK Pool yVault offers two yield strategies for users looking to earn both linkCRV tokens in Curve Finance and CVX tokens in Convex Finance. The two strategies are allocated by the vault at a 50:50 ratio, as of the time of this writing. By comparison, the LINK yVault enables users to earn LINK tokens directly. The vault optimizes yields for users with a dynamic allocation of four strategies:

  1. Lend LINK to platforms such as Cream Finance and Aave.
  2. Perform yield farming on Vesper Finance.
  3. Borrow stablecoins, such as sUSD and USDC, from Aave.
  4. Lock LINK on MakerDAO to mint DAI before depositing the minted DAI on Yearn's v2 DAI vault.

The Yearn team believes the LINK yVault is one of the most important vaults in the ecosystem, both because it allows users to deposit LINK directly and because the vault aligns with the team's vision of "DeFi Made Simple." 

The LINK yVault locked $13.3 million in assets, as of the time of this writing. However, the annual percentage yield of the vault is not yet available.

Yearn representative hints at future developments

Pseudonymous Yearn Finance vault security specialist "Doggy B" recently told Cointelegraph that the future strategies of Yearn Finance include second-layer scalability solutions and DEX liquidity pool position strategies. 

Layer-2 scalability techniques have become increasingly popular among Yearn Finance developers and vault strategists, who have started redeploying vaults on sidechains. According to Doggy B, the vault on Yearn Finance is built on Ethereum and will source liquidity via a bridge from the sidechain. However, liquidity sourcing via bridges is inefficient, as it currently takes hours — or even days — to complete. Doggy B believes most DeFi protocols are looking at rollup solutions, such as Optimism and ZK-sync, to enhance scalability.

The Yearn Finance team is also exploring liquidity pool position strategies on decentralized exchanges. In designing LP strategies on DEXs, the team must address impermanent loss and downside risk. The team initially tested options derivatives to hedge the exposure in LP position. However, this strategy was not successful, as most decentralized options platforms lack liquidity. The team is working on a feasible DEX strategy to tap into the combined capital of DEXs.

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.