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YFI Price Analysis – Defi innovator grows rapidly

YFI, the native token of the Yearn.Finance platform, has a price per coin twice that of Bitcoin. A scarce and fixed total supply has played a major factor in its eyecatching price as speculators have clamoured to buy a share of governance of this innovative DeFi platform.

Yearn.finance (YFI) is a decentralized finance (DeFi) platform that operates with a native governance token that offers voting rights and staking rewards to holders. The network is underpinned by the Yearn protocol, a yield optimizer that aims to maximize yields for a user’s crypto holdings by automatically switching their funds across a range of lending protocols.

The protocol was built by developer Andre Cronje who in early 2020 was looking for a way to automate the process of finding the highest possible yields on his stablecoin holdings. Stablecoins like DAI (DAI), Tether (USDT), USD-Coin (USDC) can be deposited in return for yields on a number of platforms like Compound, Aave, Fulcrum, or dYdX with each offering unique APY’s. Before Yearn, users seeking to maximize their yields needed to manually move their stablecoins between lending protocols. A slow, labor-intensive process that Yearn aims to avoid.

FA1

Lending and borrowing rates for DAI on Aave

FA2

_Lending and borrowing rates for DAI on compound _

The protocol works by creating pools for each asset that is deposited. When a user deposits their stablecoins into one of these pools, they receive yTokens that are yield-bearing equivalents of the coin that was deposited. If for example, a user deposits DAI into the protocol it will issue back yDAI.

Assets are automatically shifted between lending platforms in the DeFi ecosystem like Compound and Aave, where interest rates for deposited assets change dynamically. Every time a new user deposits assets into a pool on Yearn, the protocol checks whether there are opportunities for higher yield and rebalances the entire pool if necessary. At any time a user can burn their yDAI and withdraw their initial deposits and accrued interest in the form of the original deposit asset.

The protocol has evolved to offer more complex solutions that can efficiently maximize yields on user deposits. The yCRV liquidity pool built by Yearn on the Curve finance platform contains the following yTokens: yDAI, yUSDC, yUSDT, yTUSD and pays back a yCRV token that represents the index. Users can deposit any of the four native stablecoins into the pool and earn interest back from yield-bearing yCRV tokens. Depositors also earn trading fees from Curve for providing liquidity to other users of the platform.

Yearn.Finance’s solutions now also aggregate rewards from Yield farming programs that let users earn native tokens like COMP on Compound that can be earnt by offering services like liquidity provision to these platforms. The launch of incentive schemes for earning native tokens has changed the landscape of DeFi because it means that it is no longer enough to just check the base APY for crypto lending platforms. How many extra native tokens could be earnt for lending and borrowing is now a key aspect of the yield calculation strategy.

To capture this new value, Yearn launched yVaults as part of Yean.finance V2 launch in late July. Vaults are pools of funds that have an associated strategy designed to maximize the possible returns on DeFi asset pools. Beyond just moving assets between lending platforms, vaults perform multiple operations to maximize returns on deposits – like farming native coins and selling them for profits, providing liquidity to earn a share of platform fees, and using pooled funds as collateral to borrow stablecoins. Each vault follows a strategy decided by the Yearn community.

Alongside its core yield aggregator services, Yearn.finance has also built and is building a range complementary DeFi products for its ecosystem, including:

  • Yswap, an automated market-maker (AMM) that allows users to deposit single-sided liquidity – an alternative to the 50/50 deposit model offered by platforms like Uniswap, designed to reduce impermanent loss.
  • yTrade a leveraged stablecoin exchange that enables users to borrow stablecoins with other stablecoins up to 1000x leverage. Traders earn by betting on whether a particular stablecoin will move off its one dollar peg.
  • yInsure, a prototype for tokenized decentralized insurance that allows users to make claims and earn a share of community insurance payments by staking stablecoins.

FA3

Source: defipulse.com

The total value of assets locked has risen to hit almost USD800 million and there continues to be healthy demand to utilize the platform’s various yield aggregation services.

YFI, is the governance token of the platform, and was first issued as a reward for liquidity providers using the Yearn.Finance protocol, to give them the rights to run the network. When it was first launched Cronje said about the token.“In further efforts to give up this control (mostly because we are lazy and don’t want to do it), we have released YFI, a completely valueless 0 supply token. We re-iterate, it has 0 financial value.” Despite Cronje’s disclaimer that the tokens were worthless, users rushed to pour money into the incentivized liquidity pools assigned for earning YFI.

A 9-day long YFI token distribution started with 10,000 tokens allocated to the liquidity providers of the yCRV pool. The LPs had to stake their yCRV LP tokens to receive YFI rewards. Shortly after yCRV distributions, two more pools to earn tokens on the Balancer asset management platform were added, each offering 10,000 tokens to liquidity providers, ending up with a total of 30,000 YFI tokens.

YFI currently trades for ~USD21,917 and is up almost 63,372% since the 13th of July. It has traded as high as USD42,163 (on September 13th 2020). Despite sliding back in the last month, individual YFI tokens are still worth more than twice the price of Bitcoin (BTC)

Over USD500 million was deposited into these liquidity pools and there was strong market demand to buy the YFI tokens as soon as they hit exchanges with the market deciding that governance of Yearn.Finance and a share of voting rights to determine the future direction of one of the most innovative, visible, and active projects in the DeFi was a valuable asset.

A major factor in the astronomical rise in the token’s value is its comparatively scarce overall total supply compared to other assets in the crypto space. YFI has a total maximum supply of 30,000 coins compared to other crypto assets like Bitcoin at 21 million, or Ethereum which has no cap on its supply.

This 30,000 token limit now appears to be set following the completion of an onchain vote which asked the community if YFI’s minting ability should be burnt permanently. 93% of voters staked ~1300 YFI in favour of permanently capping the YFI supply and just 7% of voters staked ~96 YFI against it. .

YFI holders can stake their tokens to a Yearn.Finance governance contract and earn a share of ecosystem rewards which are derived from;

  • Yearn.Finance interest
  • COMP from compound
  • CRV from curve.fi
  • curve.fi/y trading fees
  • ytrade.finance leverage fees and liquidation bonuses
  • yswap.exchange underlying system fees
  • yliquidate.finance liquidation bonuses
  • system dust (unassigned interest or fees)

These fees are collected on a daily/weekly basis and YFI holders can claim their share of rewards by burning their YFI tokens. Cronje explains “As the system AUM and usage grow, so does the fees, and respectively the rewards pool.”

While YFI can no longer be earned through liquidity mint, it is now tradeable on major centralized exchanges including Binance and Coinbase as well as decentralized platforms like Uniswap.

Technical Analysis

Currently, YFI is trading at $24,800. On the 4-hour chart, price is recovering strongly from Wednesday’s sell-off. Currently, the strong bullish divergence via the relative strength index (RSI) has led the charge in price bouncing 14% in a 24-hour period. Additionally, the volume flow indicator (VFI) is still in bearish territory, i.e. below 0, but is beginning to trend upward.

However, YFI has several hurdles to overcome before the bulls are declared victorious. For example, price remains demonstrably beneath the Kumo Cloud, which suggests the overarching trend is bearish, i.e. price bounces are likely to fail at Cloud resistance levels. Also, price is currently attempting to rise above the 50-period Moving Average Band at $25,000, but has failed so far.

However, if successful, a retrace back up to $31,000 seems likely given its psychological importance, coupled with that level coinciding with both Cloud resistance and the 200-period Moving Average band.

TA1

The 1-day chart offers a slightly less optimistic outlook with RSI still not yet at oversold levels, stagnant on balance volume (OBV) growth, and plateauing but still elevated futures open interest (elevated levels sometimes result in sell-offs). However, price has held the $20,500 support level twice, thus might be forming a double bottom in the interim. If so, a full retrace back to all-time highs of $44,000 would be expected. However, given the macro situation affecting bitcoin currently, it is still too early to weigh this outcome as likely.

TA3

Summary

Currently, the 4-hour chart indicates a retrace back to $31,000 is likely if price can reclaim the $25,000 level. The 1-day chart offers less optimism, but is showing some initial signs of a sustained recovery. If the current bounce falters, a retest of the critical $20,500 support level is all but assured. If that level finally breaks, there isn’t significant support until the $15,000-$16,000 range.


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