Yield Farming - Yearn Finance - Crypto Academy S5W3 - Homework Post for @imagen

2개월 전

Hello everybody.

Welcome to this post. Hopefully, all of you will be good and happy and enjoying your health with the grace and blessings of Almighty Allah. Today, I am here to present the homework post for dear sir @imagen in Week 3 of Season 4 of Steemit Crypto Academy. The lecture was nicely and greatly delivered by the professor and now I am going to participate in the homework for this lecture. So, let's start our task without any wastage of time.

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There are some questions that are asked by the professor as the assignment for this week and I will explain all of them in the given order.


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(01)

Describe the differences between Staking and Yield Farming.



As we all know that the Decentralized Financial System (DeFi) is making progress day by day and new investment tools are coming into view with great and profitable changes that are impressing the minds of crypto lovers and investors. One of these investment tools is Yield Farming that is gaining popularity day by day in the crypto world. So, have a look at it in detail.

Yield Farming

As the word Yield Farming is representing its own meanings, it is something like a farming or agricultural concept in the crypto world. Actually, Yield Farming is the very latest and popular method of gaining passive income with the cryptocurrency in the DeFi platforms. It can be simply called the Farming of Cryptocurrencies.

Yield Farming is a process in which cryptocurrency investors lock up their crypto assets in the Yield Farming platforms where there are liquidity pools for the investors. The invested or locked up amount of the assets provides liquidity to that pools. Those pools are sources of borrowing crypto assets for the borrowers. When the borrowers show interest in getting the assets as loans then the amount of assets is provided to them by the liquidity pools and the investors get a reward for their investment.

The rewards that are given to the investors as the profit could be in the form of the same tokens that are invested or could be some other tokens or cryptocurrency assets. The investors who provide their tokens to the liquidity pools are known as "liquidity providers" or "farmers" and when the borrowers take assets as loans, the liquidity providers get profits.

Staking

Staking is a process that is useful in the involved in the mining of cryptocurrencies. Staking is also related to the locking up of cryptocurrency assets but it is different from Yield Farming. In Staking, the investors lock up their assets in a pool and when a transaction is made in the platform, this pool act as a node of validation of that transaction, and the investor, in return, get the reward.

Staking could be done in the platform that is based on the Proof of Stake consensus mechanism. The investors lock up their assets in the pools and those assets are utilized for validation of blocks. The more investment we have made, the more reward will be given to us as profit. The reward would be in the form of the same asset we have invested or locked up.

In this way, Staking is helpful in improving the liquidity of a market as well as minimizing the risk of hackers.


Comparison...

Now, we will discuss some Differences between Yield Farming and Staking. So, have a look.

Yield FarmingStaking
It is a process that is involved in making a profit in the DeFi platformsIt is a process that is involved in the mining of the cryptocurrency assets.
The investors take reward when the borrowers take the assets as loans from the liquidity pools.The investors take reward when the transaction or block is validated in the blockchain.
The profit percentages can reach 100% of the invested amount.The profit percentages lie between 5-15% of the invested amount.
It is more profitable than Staking.It is less profitable than Yield Farming.
The Yield Farming platforms use the Automated Marker Maker (AMM) technique for rewarding the liquidity providers.The blockchains are based on the Proof of Stake consensus mechanism for rewarding investors.
There are no investment periods to invest or lock up the assets.It requires locking up the assets for a particular period of time.

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(02)

Login to Yearn Finance. Explore the platform completely and indicate its functions. Describe the process for trading on the platform (wallet connection, funds transfer, available options) Show screenshots.



Yearn Finance

Yearn Finance is a Yield Farming facilitating DeFi platform where the users can take advantage by investing their assets in the liquidity pools (liquidity provides) and take assets from liquidity pools as loans (borrowers). This platform is based on the Ethereum network. Yearn Finance was developed by a well-known figure in the crypto world, Sir. Andre Cronje. Thanks to him for developing such a platform where the investors can take rewards for their investment through Yield Farming strategies.

Features on the Platform

Now, we will explore some awesome features that are available in the Yearn Finance platform. So, have a look.

  • Home:-

On the homepage of this platform, we can the DashBoard of the platform. We can see a number of information on the homepage of this platform. Some other the menu bar of this platform is present on the left side of the home screen.

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Yearn Finance

  • Wallet:-

This option is available in the life-side menu of the platform. We can access this feature to connect an Ethereum wallet to this platform.

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Yearn Finance

  • Vaults:-

The Vaults option is also available in the left-side menu of the platform. In this feature, we can see the top-rated assets with the highest APY percentages. We can also see other investment opportunities on this page. We can see the pools where we can lock up our assets and make income in this feature.

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Yearn Finance

  • Labs:-

In this feature, we can see the various information about the pools that are available on the platform. We can find the best investment opportunities in this feature and different pieces of information and details about the pools.

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Yearn Finance

  • Iron Bank:-

This is the main feature of the platform. This feature allows us to make investments in the pools and act as liquidity providers and take loans from the pools acting as borrowers. We can make investments or borrow the assets from the liquidity pools which we want.

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Conecting a Wallet


As we have discussed some basic information about the Yearn Finance platform in the above segments so now I am going to connect a wallet with this platform. I am going to connect a MetaMask wallet. So, have a look.

  • First of all, go to the Homepage of Yearn Finance and click the Connect a Wallet option in the top right corner of the page.

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  • Now, click the MetaMask option in the pop-up menu.

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  • Now, click the Next option in the wallet extension window, which just appeared.

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  • Now click the Connect option in the same window.

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  • The MetaMask wallet will be connected to the Yearn Finance platform as you can see in the below screenshot.

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Depositing Assets


Now, I am going to discuss the method to lock up the assets in this Yield Farming platform. So, have a look.

  • First of all, go to the Vaults option in the left-side menu. Select the pool in which you want to deposit. I am going to deposit in Curve OUSD. So, I clicked on the Deposit option next to it.

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  • Now, click on the approve option in the popped-up menu.

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  • Now, we have to confirm the deposition from the MetaMask wallet but I can not proceed as I do not have enough funds for this transaction as the fee is too much in ETH. However, the method has been discussed.

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Note: All the screenshots are taken from Yearn Finance platform.


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(03)

What is collateralization in Yield Farming? What is function?



As in our daily life, when we borrow some money from the bank or other sources, a trusted person gives our surety to the lending source, or some money is kept as a security amount so that if the borrower could not pay the loan, the money would be given to the lending source.

The same is the case within the cryptocurrency world. When a borrower takes some assets as a loan from the Yield Farming platform, some amount is kept as a surety amount which is paid to the lending person if the borrower does not return the loan.

The borrower has to put some money as collateral amount so that the lending source will be paid with this money if the borrower does not return the assets. The collateral amount is a bit more than the amount to be borrowed. This is due to the chances of liquidation of the amount due to high volatility and fluctuations in the price of the assets.

Different platforms offer different percentages of the collateral amounts. Some of the platforms specify a small amount as collateral amount while the others demand a very high amount as collateral. Suppose a platform requires a 500% collateral amount per 1000$, it means that we can borrow 20$, in this case.


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(04)

At the time of writing your assignment, what is the TVL of the DeFi ecosystem? What is the TVL of the Yearn Finance protocol? What is the Market Cap / TVL ratio of the YFI token? Show screenshots.



TVL of DeFi Ecosystem

TVL is actually the Total Blocked Value in a DeFi protocol. It means that the whole amount has been locked up in the DeFi application or platform.

The TVL value of DeFi can be obtained from the DeFi Pulse platform. You can see this in the below screenshot.

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DeFi Pulse

The TVL value of the whole DeFi ecosystem is $111.55 Billion at the time of making this post.


TVL of Yearn Finance


The TVL of Yearn Finance protocol can be seen by scrolling down the page. You can see this in the below screenshot.

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DeFi Pulse

The TVL value of the Yearn Finance protocol at the time is $4.62 Billion.


Market Cap/TVL Ratio of YFI


The MarketCap/TVL ratio of the YFI token can be obtained from the CoinMarketCap. It can be seen in the below screenshot.

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Image Taken From CoinMarketCap

Following information are obtained from the CoinMarketCap:

Token NameYFI (Yearn Finance)
Current Rank101
Current Price$29,731.68
Market Cap$1,089,733,861
Market Cap/TVL Ratio0.1783
TVL$6,102,154,452

From the above data, we can see that the Market Cap/TVL ratio of the YFI token is 0.1783 at the time.


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(4.1)

The YFI token, is it overvalued or undervalued? State the reasons.



The TVL value is the total amount that has been locked in the platform. But we have to consider the Market Cap/TVL ratio for considering a token as overvalued or undervalued. The native token of Yearn Finance platform, YFI is undervalued at this time.

One of the reasons is that the theoretical analysis has shown that if the Market CAp/TVL ratio of a token is less than 1 then the token will be undervalued and if it is greater than 1, the token will be considered overvalued.

As we all know that Yearn Finance platform is a very fantastic platform where investors can make good profits from their contributions to the liquidity pools. The platform is also earning good profit through various fees and other sources so the value of its token would increase a lot. So, we can say that the token is undervalued.

We can also see that this token has a number of uses. It is used within the platform for various activities while other assets are used to store the money or for payment purposes. So, the value will increase in near future. So, it is said to be undervalued at the time.


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(05)

If on August 1, 2021, you had made an investment of 1000 USD in the purchase of assets: 500 USD in Bitcoin and the remaining 500 USD in the YFI token, what would be the return on your investment in the actuality? Explain the reasons.



Investment in BTC

Firstly, I am going to calculate the return in the case of an investment of 500$ in Bitcoin. So, first of all, we will see the price of BTC on August 1, 2021. So, have a look.

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CoinMarketCap

According to CoinMarketCap:

The closing price of BTC on August 1, 2021, was = $39,974.90

So, We would have got with 500$ at that time = 0.0125BTC

Now, we will consider the price of BTC today from the CoinMarketCap and calculate the USD for 0.0125BTC. So, have a look.

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CoinMarketCap

I have calculated the USD for 0.0125BTC from the BTC to USD converter on the CoinMarketCap.

I gets USD for 0.0125BTC now = $733

Return on Investment = $733-$500 = $233

Return on Investment %age = ($233/500) x 100 = 46.6%

Return on Investment (BTC)$233 (46.6%)

Investment in YFI

Now, I am going to calculate the return in the case of an investment of 500$ in the YFI token on August 1, 2021. So, first of all, we will see the price of the YFI token on 1 August,2021.

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CoinMarketCap

According to CoinMarketCap:

The closing price of YFI on August 1, 2021, was = $31,779.15

So, We would have got with 500$ at that time = 0.015733 YFI

Now, we will consider the price of YFI today from the CoinMarketCap and calculate the USD for 0.015733 YFI. So, have a look.

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CoinMarketCap

I have calculated the USD for 0.015733YFI from the YFI to USD converter on the CoinMarketCap.

I gets USD for 0.015733YFI now = $465.88

Return on Investment = $465.88 - $500 = - $34.12

Return on Investment %age = - ($34.12/500) x 100 = - 6.8%

Return on Investment (YFI)$34.12 (- 6.8%)

Total Return of Investment can be calculated as :

Return of Investment in BTC = $233 - $34.12 = $198.88 = 19.88%


Comments...

As we can see from the above calculations that Bitcoin gives us a profit of 46.6% which is about $233. While on the other hand, the YFI token gives us a bit of loss of 6.88% which is about $34.12.

So, it is clear that Bitcoin is a very good coin for long-term investment as it is the most rated coin, as well as, the king of all the cryptocurrencies. So, BTC is a very good investment opportunity for long-term traders.

While the YFI token gave us a loss of $34.12 but I think that it is also a good price for the traders to enter the market. The market is showing a ranging phase and investors can open the buy order at this time.


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(06)

In your personal opinion, what are the risks of Yield Farming? Give reasons for your answer.



As we have discussed before that the Yield Farming is a very good investment tool to make a daily profit by investing assets in the liquidity pools. However, there are also some risks that are related to Yield Farming. Some of them are as follows.

  • The first risk related to Yield Farming is security issues. As we all know that the DeFi protocols are based on smart contracts that act as commands for the system. These smart contracts are susceptible to hacking by the bad and black-minded people. The funds that are lost once cannot be recovered again and thus this is a very risky situation.

  • Yield Farming platforms are susceptible to hacking as we have also a historical example of the Yam Finance platform whose value drops from a great level of about 167$ to something like negligible. This was a great shock for the investors of the platform.

  • The high volatility of the tokens that are supplied to the liquidity pools as investments is also a very big problem for the investors of the assets.

  • Another factor that is disturbing the investors is the high gas fee of the platform that is based on the Ethereum network. So, this is also a risky scene.

  • The activities of the heavy investors in the pools can also put the investor at risk of losing their assets. This has also happened many times in history when the whale investors take their funds out of the pool, the value of the assets goes down effectively.

  • The scams that are wandering in the platforms are increasing the risky situations, day by day.


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Conclusions


Yield Farming is an investment tool for the investors in which the investors lock up their assets in the liquidity pools and get interested in their investment whenever the borrowers get loans from the pools. The investors are called liquidity providers while the loan takers are called borrowers.

Yearn Finance is a DeFi platform that is based on the Ethereum network and allows the users to make a profit by participating in Yield Farming. TVL is the total value that is locked in the platform. In short, Yield Farming is a very great development by the DeFi experts to facilitate the investors.


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So, that's all about the homework for this week. Hopefully, all of you will like this post. Thanks a lot to dear professor @imagen for such an amazing lecture.


Credits: @steemdoctor1 (Crypto Student)


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Gracias por participar en la Quinta Temporada de la Steemit Crypto Academy.

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  • Cumples con todos los requisitos.
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  • Nivel aceptable de contenido.
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Continua esforzandote, espero seguir corrigiendo tus asignaciones.

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Thanks a lot dear professor for this responce.