Yearn Finance is falling behind.
While other DeFi heavyweights like Aave, MakerDAO, and Uniswap are outperforming Ether, the pioneering returns aggregator is losing support and value.
This week, like Yearn celebrated on its two-year anniversary, the project has fallen out of the public eye as Total Value Blocked (TVL) has dropped even in ETH terms by 51% year-to-date, according to DeFi Llama .
USD-denominated TVL is down 86% in the same time period as depressed crypto prices contribute to the decline.
Yearn’s YFI token hasn’t fared much better, underperforming the top five assets in the DeFi Pulse Index, as well as BTC and ETH year-to-date, according to The Defiant’s recently released terminal.
Yearn Finance has always been an outlier. Launched in 2020 by founder Andre Cronje, it was the first type of protocol designed to maximize investors’ profits by automatically mixing assets between other protocols.
By connecting to other projects, Yearn advanced the idea of DeFi Legos and the ability for one team to permissionlessly build a protocol on top of others’ smart contracts to create value.
But it’s a different world now: interest rates are rising, while crypto’s amazing annual percentage returns (APYs) have dissolved.
“DeFi returns have sunk this year, while TradFi returns have risen significantly,” Ryan Watkins, co-founder of crypto hedge fund Pangea Fund Management, told The Defiant. “The product is not as attractive today as it was when double- and triple-digit APYs were the norm.”
Recent rate hikes
In fact, Yearn returns for major stablecoins like DAI are at 2.14% as of July 19th. For USDC, they are at 1.90%. This comes at a time when 10-year US Treasuries are yielding 3% thanks to recent rate hikes.
Performance aggregator appears to be tightening its belt: A June 21 government filing by well-known Yearn developer Banteg called for a reduction in contributor compensation by a factor of 6.17 and a overall reduction in spending by a factor of 2.92.
“The model of how full-time workers are compensated at Yearn was established at the height of the bull market and no longer corresponds to reality,” the developer wrote.
Banteg and six others also wrote a Snapshot proposal on June 17 to address the underperformance of some of Yearn’s vaults. Basically, the proposal, known as Yearn Improvement Proposal 69 (YIP-69), establishes a new team that can adjust the rates for the yield aggregator so that they do not exceed and thereby eliminate the yield earned by depositors.
According to YIP-69, if a vault offers below 2.5% APY, as DAI and USDC do, depositors will see no return.
Banteg also published a general article on building in a bear market. In it he highlighted an overhaul of the current V2, the development of a V3, as well as driving further B2B efforts, launching new tokenomics and much more.
It’s worth remembering that like MakerDAO, managing a decentralized autonomous organization (DAO) at scale has never been done before. Yearn is still in a class of its own, or at least at the top of its class. With $586 million in TVL, DeFi Llama’s “performance aggregator” category shows the protocol ahead of the number two aggregator, Beefy Finance, by 68%.
And Yearn has a hardy treasure. According to a chart published by The Block, the yield aggregator’s treasury saw the smallest percentage change from January to June among the major DeFi projects.
Thinking along these lines, Watkins believes that public performance aggregators are here to stay.
“It’s an important primitive in DeFi,” the fund manager said, saying other protocols will use yield aggregators to manage their treasuries and users will continue to demand non-custodial yield accounts.
“[I] I think they eventually co-exist alongside custodial and private performance strategies,” Waktins said.