yEarn Protocol’s yETH Vault Is a Giant in the Making for Ethereum DeFi

Centered around the values of fairness, transparency, utility, and rapid development, yEarn, an automated aggregator protocol, has become one of Ethereum’s hottest attractions and most promising pillars in 2020.

Currently the fifth-largest protocol in DeFi, yEarn provides easy access automated yield strategies. Among the project’s signature cryptonative products are its Vaults, in which users can deposit an asset and, via various specially-designed DeFi maneuvers, maximize the yield of that asset.

That said, heads turned in the Ethereum ecosystem last week when yEarn launch its highly-anticipated yETH Vault, the first blockbuster ETH-centric yield farming service in DeFi.

How the yETH Vault Works

yEarn’s yETH Vault is certainly a feat of smart contract engineering, but it’s easy to grasp how the system generally goes ’round. A yETH position works like this (and mind you, this is all accomplished through a few easy clicks on yearn.finance):

  • A desired amount of ETH is sent into a yWETH vault
  • The ETH is deposited into lending protocol MakerDAO
  • This collateral is used to back an automated Dai loan via Maker 
  • The Dai is deposited into Curve to participate in the protocol’s CRV farming campaign
  • CRV profits are sold for ETH

The idea here, then, is that users can now easily put their ETH to use to steadily yield farm more ETH. If you’d like a visual sense of how this process works, community member DeFinn recently published an excellent primer graphic.

Understanding the Risks

The yETH Vault employs a debt-based yield farming model, i.e. it’s underpinned by ETH-backed Dai loans, so the product is inherently risky. It has various layers of risk, too.

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