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YFI is the native token of the Yearn.Finance system.
Yearn.Finance is a DeFi yield farming system, focused on making it easier for users to automatically farm the highest-yields possible with their cryptocurrency.
Yearn is a growing collection of DeFi services, intended to act as a simple gateway for the wider DeFi ecosystem.
Its centrepiece is the ability to automatically invest user deposits in the highest-yielding place available in the DeFi ecosystem, through Yearn Vaults.
Users deposit funds into the vault, and those funds are then collectively allocated to the most lucrative yield farming available, and the returns from those are distributed proportionally to users, accumulating to the yTokens users are given when they make deposits.
Yearn can similarly let people make stablecoin deposits straight to the highest-yielding lending platform available, to earn competitive returns on stablecoins.
In addition to the ease of use, this also helps batch transactions to save on Ethereum gas fees.
The service doesn't come for free though, as performance fees and other costs are extracted along the way. These fees can be paid to YFI token holders as dividends, in an amount the community of token holders agrees on.
Throughout 2020 Yearn Finance has partnered with a series of DeFi projects which are gradually going to be integrated into the Yearn ecosystem in various ways.
Pickle Finance offers a similar product to vaults, called jars. It will be integrated when Yearn V2 goes live and will bring a wider range of stablecoin strategies to Yield.
Cream is a lending protocol that will enable Yearn depositors to use their vault tokens as collateral to borrow funds on cream, providing increased liquidity to the platform. Development resources will also be shared between the two teams.
Akropolis is a DeFi platform for institutional investors, giving them a convenient way to enter the growing DeFi market. Akropolis plans to integrate Yearn vaults into its platform with its next V2 update.
YFI is purely and simply a governance token. Its holders are allowed to vote on decisions that affect Yearn.
While simple on paper, this can potentially be quite complex and lucrative though, as evidenced by the token holders' decision to receive a cut of the fees.
And if Yearn becomes a prominent part of the DeFi world over time, other decisions such as support for different assets, and the way returns are paid or reinvested, could have profound impacts on the rest of the market over time.
Yearn encourages YFI token holders to actively participate in governance.
Risks of buying YFI
It's important to remember that YFI is an experiment and a work in progress. There are no guarantees of a successful outcome, or that the token will remain valuable.
In particular, it's essential to remember that Yearn is a public, open-source project which anyone can copy at any time. Yearn has many imitators and competitors, and it will continue to have them. Yearn does not have any kind of proprietary technological edge over its competition.
The value of the YFI token is primarily associated with the community that's grown around Yearn, and is a reflection of people's confidence in the people who are working on Yearn. This makes it extremely unpredictable and highly speculative.
If you are not completely certain of how YFI works and what its value proposition is, it may be safer not to risk your funds.
Here's a step by step guide to one way of buying YFI. Note that there might be other options available, so you may want to compare cryptocurrency exchanges to find the one that's right for you.
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