One of the first partnerships ShapeShift established as a DAO was with Yearn.finance, whose protocol has a built-in affiliate revenue program. Through this partnership, ShapeShift integrated Yearn vaults into the new open-source v2 web app, allowing users to earn yield on their digital assets with no added fees. As the v2 platform’s capabilities expand, ShapeShift continues to enable users to enjoy the best yield and a unified user interface, all with no added costs or diminishing returns. The Yearn integration is a free public good - made possible by the community Foxes like you! Want to become a FOX? Click here.
In July, ShapeShift announced that it would decentralize the company and open-source all of its code with the goal of building a dynamic and robust community around a fully open-source system to stay at the cutting edge of the DeFi space.
Protocols and other crypto services such as fiat ramps, NFT marketplaces, and web3 providers can integrate directly with ShapeShift and use our open-source, prebuilt, and easy-to-integrate features. This allows new projects to gain valuable exposure to a growing userbase without worrying about added fees or the risks and dependencies inherent with centralized, closed-source interfaces. Instead, protocols now have the option to build on a free, open-source, and decentralized UI. At the same time, users can access multiple yield protocols in one place and find the best opportunities to put their digital assets to work within the ShapeShift app.
In addition to the integration of Yearn vaults, ShapeShift plans to further expand user options to different farming opportunities by integrating with single-sided asset staking protocols such as Badger, Harvest, and Pickle Finance.
Community developers can contribute to the code from anywhere in the world. Everyone is welcome to attend community calls on ShapeShift’s Discord to view demos, discuss integrations, or join general discussions about product engineering topics. It’s easy to start coding and partner with ShapeShift – find out more here.
What is Yearn?
Yearn.finance founder Andre Cronje could serve as an inspiration to many looking to make their mark in the DeFi space. As Andre was exploring DeFi in 2020, he found that DeFi was too complicated and largely inaccessible to the average user. He wanted to find a way that was easy for the user to navigate, profitable, and secure.
Cronje’s solution was Yearn.finance - a yield aggregator that maximizes yield by strategically allocating liquidity to various DeFi protocols. One of the reasons Yearn is appealing is its ability to make complex yield farming strategies available to the average crypto user. At the time of writing, Yearn manages 89 vaults and implements 250 different yield-farming strategies across those vaults. The number of vaults and strategies is constantly being added to as new opportunities manifest themselves - click here to read more about Yearn strategy development. The ShapeShift v2 web app has 62 various Yearn vaults available here. These vaults allow users to easily provide liquidity with a wide range of tokens and generate yield.
Similar to the ShapeShift DAO, Yearn is an entirely decentralized protocol governed by the YFI token holders - with a total token supply of 36,666 YFI. As of the writing of this article, 35,692 are in circulation, 16 are burnt, and 956 are in the Yearn treasury to be distributed among contributors as rewards. Anyone who owns YFI tokens can vote for changes and other decisions in the protocol and its products - view the Yearn governance forum here.
Yearn Vaults and Strategy
Yearn vaults are pools of user funds managed by automated strategies, allowing users to maximize their gains without doing the hard work of switching between various yield farming strategies.
When you deposit funds, you will automatically receive a yToken. yTokens represent your share of funds in the Vault (also known as a liquidity pool). This token is used to redeem your funds when you want to take them out of the pool. For instance, if you deposit ETH, you will receive yETH.
The strategies used in Yearn Vaults are developed by the token holders who are part of the Yearn community. yVaults put the user deposits to work on different DeFi protocols, such as providing liquidity to decentralized exchanges or providing collateral for loans. Earnings from one protocol are compounded and re-invested into subsequent DeFi protocols.
These vaults reduce the high gas fees of transacting on Ethereum for the pool, as only a single account pays fees instead of each user. The pools that Yearn enters are gas optimized for automatic rebalancing. This means that on Mainnet, this rebalancing could happen every two weeks. Rebalancing will naturally be faster and more frequent for other networks, such as Fantom, due to cheaper gas prices.
Individual vaults managed by Yearn range in value from tens of thousands of dollars up to 800 million dollars, with a total value of all vaults just over $4 Billion. To help manage this large (and growing) quantity of funds, Yearn has 30+ strategists whose sole priority is to follow the pulse of DeFi opportunities and find the best yields.
An internal committee audits their strategy recommendations to ensure that the protocol and overall farming strategy code remain safe. In addition to the internal audits, Yearn does not shy away from external audits and incentivizes their strategies and vaults to be evaluated by a credible third party. Most recently, on February 23rd, Yearn passed a Process Quality Review conducted by DeFiSafety with a final score of 93% - view the audit here. Yearn vaults are intrinsically designed to be “up only” and “lossless.” This is accomplished by limiting exposure to tokens that risk impermanent loss. Vaults are often not harvested until they turn a profit, which further protects the value of deposits. To create and implement a new vault and strategy on their platform, Yearn has an aggressive 10 step regimen for proposed vaults and strategies to go through - click here to learn more about vault creation.
Users can get a real-time look into every one of Yearn’s yield strategies by visiting Yearn.watch, which shows metrics such as where funds are farming, how much is in the pools, and when it is harvested. According to Yearn, there are plans to add their risk factor to these metrics to give users further insight into how the pools operate. As shared by Yearn contributor Corn, “Yearn’s risk framework evaluates eight key metrics: TVL impact, third party audits, internal code review, complexity, longevity, protocol safety, team knowledge, and testing.”
Fully realizing that yield is finite and that there are few places to find good, safe, and sustainable yield, Yearns long-term solution is focusing on expanding to more chains and integrating with DAO treasuries and tactics – similar to the implementation of the ShapeShift Yearn router contract.
Fee Structure of Yearn
Yearn charges a 20% performance fee. This performance fee is deducted from the yield earned every time a vault harvests a strategy. In addition, there is a 2% flat rate management fee that is taken from vault deposits throughout the year. These fees are extracted by minting new vault shares, diluting the vault participants. This is also done at the time of harvest and calculated based on the time since the previous harvest.
For example, a vault takes about 0.0055% of the deposits per day on average (this is calculated by taking 2% / 365 days).
- It dilutes the vault tokens by 5 * 0.055% after five days without harvesting.
- It would dilute the vault tokens by 7 * 0.0055% after 7 days without harvesting.
- Vaults are only harvested if it is profitable after fees. Users won’t withdraw less than their initial deposit.
On the ShapeShift UI as well as the Yearn.finance UI, yield is displayed as net APY. Both fees and compounding returns are considered in the rates presented, and since harvests do not occur on a set basis, yield is estimated based on historical data.
The ShapeShift Router Contract
As part of our partnership, ShapeShift implemented a router contract to make it easier for ShapeShift end-users to interact with Yearn vaults. Yearn tracks deposits to vaults made via the ShapeShift Yearn router contract and rewards the DAO with affiliate revenue. Unlike other solutions, our router works with native vault tokens, not wrapped ones, so users enjoy maximum flexibility and no vendor or partner lock-in.
The ShapeShift Yearn router smart contract is open-source and is available for anyone in the Yearn ecosystem to use and build on. It has been audited by Zokyo and passed with a score of 99/100 - Click here to view the audit. This audit analyzed the smart contract codebase for quality, security, and correctness. A score of 99 indicates that the smart contract has passed security qualifications and is fully production-ready.
Why Use Yearn Vaults?
For an ordinary DeFi user, it is difficult and risky to formulate and implement complex investment strategies like Yearn's. Through focusing on smart contract audits, code evaluations, rigorous internal creation and maintenance processes, Yearn vaults provide users with a heightened level of security and exposure to the bleeding edge of DeFi.
The Yearn integration with ShapeShift offers users access to these advanced DeFi strategies provided by Yearn with the same clean, consolidated ShapeShift UI. Users can confidently participate with their choice of 62 unique vaults - all while generating affiliate revenues for the DAO.