Ethereum
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ETH · 17w

Analysis of yearn and mStable frenzy

Analysis of yearn and mStable frenzy TL;DR

DeFi projects yearn.finance and mStable are introducing new “mining” mechanisms that elevate yield farming to a new era: farmer farming. Whoever wants to join the yield farming game, will first be farmed by the previous farmers.

You think you are yield farming, but actually you are the “crop” being farmed. Value proposition of protocol tokens

Recently, many DeFi projects have introduced a token to their system. Whether governance/protocol/ownership/whatever token, every token is for voting or fee-sharing, or both.

DeFi protocols distribute token to their users and create a frenzy of “liquidity mining.” For example, take the most famous liquidity mining project: Compound Finance. They send the protocol token COMP to their depositors and borrowers. Compound Finance said it’s for more decentralized governance, and they want to give power to the people who are recurring users of the protocol.

But people are not dumb; we all know that Compound is making money: ~10% of interest paid by borrowers are collected as a reserve fund, and Compound government can easily draw it as revenue of the protocol itself. Even though COMP is now a governance token, holders eventually will profit from the protocol’s income.

So, since COMP is expected to benefit its holders, it of course has financial value. People are incentivized to supply/borrow coins in order to earn COMP, that quickly boost Compound to around five times more TVL.

Synthetix, Compound, Kyber, Balancer, Curve have all announced similar sort of so-called governance (but actually backed by future interest) token and gain massive success in the industry.

Looks like yearn is just yet another DeFi issuing token. Nevertheless, beyond dozens of protocol tokens, mStable’s MTA and yearn.finance’s YFI are creating next frenzy era of protocol token.

What makes YFI so different?

Value of YFI

yearn.finance(previously iearn...

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