So over the past few months, many tokens such as YFI and other robo-yield projects have been wildly praised for their ability to generate cashflows. The biggest benefactor of this was YFI which saw it's token price sky-rocket to over a multi billion dollar valuation in less than a few months.
I started thinking about this even more after listening to the DegenSpartan interview on UncommonCore: https://uncommoncore.co/transcript-for-14-interview-with-a-spartan/
A key excerpt from the interview which sums up my thinking around this:
It was excellent timing of the universe that Curve launched CRV shortly after yVaults and directing the vaults to farm it was ridiculously profitable for everyone involved. Everyone was euphoric about the “cash flows” coming in from the vaults. But were these cash flows sustainable? In my opinion, not by a long shot. Yields above 20% is an anomaly in this world that would be corrected sooner or later.
The recent cash cow for the DeFi world has been $UNI, creating high yield farms for every yield aggregator out there. The immediate reaction from most people have been "doesn't make sense, sell". I'd largely agree but I think the key thing here is that measuring projects for cash flows at an early stage is a fatal mistake. While I'm excited for $PICKLE and $HARVEST, I wanted to keep the focus on $YFI as an example of how I see things playing out.
A Recap
YFI retains the Andre premium but also is the first mover with it's unique launch characteristics. Replicating YFI is near impossible and projects that try to are playing a dead game. I personally purchased YFI at a FDV of $20m-$40m back when it launched: https://defiweekly.substack.com/p/yfi-and-the-acceleration-of-crypto
The bet was simple at the time, something unique, low valuation relative to the rest of DeFi - makes a good pre-seed bet. For me, that bet paid off and since YFI has grown into it's new valuation my investment thesis on it has had to also change. The new problem that YFI faces is two fold:
The ability for the project to attract and retain new devs. Paying devs from treasury with cash is sub-optimal and makes it hard to retain and attract top tier talent. Slowly more and more of the YFI community is waking up to this but no clear solution presents itself.
Competition from other yield farming protocols such as harvest, pickle and the countless others is rising very quickly. Creating differentiation is going to be increasingly harder given where things are heading in this arena.
However I think the key thing which $YFI has going for it is the depth of technical execution from the core team in some of the key strategies with $ETH and the movement into utilizing options & leverage to create new forms of yield farming. For example:
This is really big since it creates the ability for much more dynamic strategies that go far beyond writing simple smart contracts. In essence, the way these options work is that they allow yEarn to sell ETH and create a hedge in the case of the price of ETH goes down. If the price of ETH goes up, there's plenty of upside to go around!
The second really cool innovation coming out from yEarn is the v2 vaults which seem to be getting a lot of attention but are neat in the fact they open MakerCDPs with deposited funds and then globally manage the CDP on behalf of everyone to ensure liquidations don't occur as easily. You can read more about v2 vaults over here:
A lot of the above innovations require very good technical execution and yearn has some of the best on the block. The thesis is simple, a team that keeps shipping and is creating new value should always retain a premium. The day that yEarn's core talent starts to become disinterested in making thousands of holders rich for little is when people should start becoming worried. Another relevant quote from the recent DegenSpartan interview:
I could not understand why people were buying into the tokens. Did Andre pinky-promise that he would do pro-bono work for all the YFI holders exclusively until he retires? To be honest, I was perplexed that Andre kept releasing things under the YFI umbrella and banner at all. For example, do yVaults need to be yVaults? To me, they could’ve just as easily been AndreVaults, and Andre himself collects the fee for maintaining and managing the vaults. But I suppose he wanted a body to be able to organize themselves and do that instead. I did not expect Andre to keep building things and injecting them under the YFI umbrella.
Focus Areas
From my assessment of YFI as someone who is somewhat plugged-in but not deep in the weeds, there's 3 core focuses that seem to be emerging:
I hate paywalls as much as you do, however I want to make sure I can continue to write amazing content for you all. Subscribing is a gesture that I’d personally really appreciate since it allows me to keep making DeFi Weekly even better. Learn more: