Decentralised Finance has certainly raised Ether’s value which has been slightly reflected in its price. The need to own ETH to operate in DeFi and the need to own ETH to pay for network fees have all been contributing factors for sure. But what if we told you, this is not the most bullish thing?
First we need to start with yEarn Finance. You have certainly heard of yield farming and liquidity mining by now, the processes that have been literally printing money out of thin air in recent months, their value is only deemed by their demand. Which is the case of Bitcoin too, it is computer-minted money after all originally created by a single person (or possibly group of people), its only value is what we (users/speculators/miners) are willing to pay for it.
The process for yield farming is not the simplest and so Andre Cronje created a platform that eased this entire process: yEarn Finance.
The most popular products is “Vaults”. “Vaults” takes the funds deposited and follows strategies to maximise the return on those via farming/mining while also not taking excessive risk such as using unaudited contracts for example.
The yETH Vault is new and has gathered a lot of traction. This is how it works:
- User deposits ETH into the vault
- yETH vault takes ETH to Maker to mint DAI at a 200% collateralisation ratio
- DAI is put into yDAI
- DAI is taken to Curve, locked and provided as liquidity
- Curve gives CRV to the LP (liquidity provider) for the service as well as part of the fees
- CRV tokens sold and revenue and given back to yETH vault participants
The vault has gathered over 300,000ETH in the first few days and is now not accepting further funds. As I write this, the APY is about 42%.
The Bullish Case
Why is this bullish? It’s bullish because more ETH is getting taken away from the supply and getting locked. Why is ETH2.0 bullish? Because staking forces many (appeals to many as well) to take coins and stake them which makes them unavailable for sale for a certain period of time. Ultimately, it all boils down to supply and demand, the basis of economics.
We live in the real world and of course there is no such thing as a risk-free 40% return per year. The reason it is high is because people using it are taking part in the DeFi experiment which has risks.
- More ETH is getting taken out of circulation
- DeFi is helping ETH become more valuable even before the release of ETH2.0