Can Yearn disrupt the $110 trillion asset management industry?

  1. The asset management industry has $110 trillion assets under management (AUM).
  2. Yearn is not directly comparable to an asset manager in traditional finance but a comparison with Blackrock is helpful for understanding where its revenues come from and its early setbacks.
  3. There are over $300 billion of tokenized assets on Ethereum which are growing rapidly.
  4. Yearn is leading the innovation in risk-adjusted yields putting it in pole position to benefit from the rise of assets on Ethereum. This will likely lead to Yearn’s AUM increasing significantly over time.
  5. Being a DeFi protocol gives Yearn advantages unavailable to other crypto asset managers, such as Grayscale and Celsius. In particular, its permissionless nature allows integration with other protocols, such as the recent one with Alchemix.
Growth in DeFi TVL has been explosive for 3.5 years¹
  1. The asset management industry
The asset management industry is measured in $trillions AUM and highly concentrated (June 30th 2020 data)
Similar sources of revenue. Different technologies.
  • In 1994, Fink and his co-founder had an internal dispute over methods of compensation and equity
  • Before Blackrock he lost $100m at Boston First due to poor risk management practices
  • Incentivizing people is difficult and usually requires compensation. This is true for most organizations, be they companies or protocols.
  • Risk management is hard. Losses due to poor risk management practices are not unique to DeFi on Ethereum, or because of the particular programming language used.
  • how cheap it is — more than $200m capital raised for $33
  • transparency — anyone can view the transaction shown below on Etherscan
  • no middleman — no need for Goldman Sachs or Morgan Stanley
A $200m+ capital raise on Ethereum is extremely cheap
  • $155 to take out a $9.7m collateralized loan
  • No paperwork
  • No humans required — just a purple rabbit
Taking a $9.7m collateralized loan on Ethereum is extremely cheap
A $200bn+ market cap makes Ether a top 50 global asset
  • Hold it in cold storage or a hot wallet if you consider the price volatility of ETH risky enough without taking on additional risks to earn a yield
  • Hold Grayscale’s Ethereum Trust which gives you ETH price exposure in a tax advantaged account, but charges a fee
  • Hold it on a centralized exchange ready to trade it
  • Deposit it in the ETH 2.0 staking contract and operate an ETH 2.0 validator to earn yield
  • Deposit it on a lending protocol, such as Aave, Compound Finance or dydx to earn an interest from collateralized lending (and flashloan fees)
  • Use it to open a Collateralized Debt Position on MakerDao, and use the Dai to earn a yield or to trade
  • Deposit it on Curve Finance to earn trading fees and rewards from the ETH:sETH pool
  • Deposit it in Curve Finance’s steth pool and then deposit the liquidity provider (LP) token in Yearn’s crvSTETH vault to earn a yield (made up of LDO and CRV rewards)
  • Combine it with your favourite ERC-20 to earn trading fees (and liquidity mining rewards) on Uniswap or Sushiswap
Valuable governless tokens
  • Maker (MKR) incentivizes you to vote on which collateral types can be onboarded and which parameters should be chosen
  • Synthetix (SNX) incentivizes you to mint sUSD and use it to trade on their synthetics platform
  • Aave (AAVE) has its safety module incentivizing you to vote against the onboarding of assets that are deemed too risky
  • Compound Finance (COMP) wants you to vote on interest rate model updates
  • Curve Finance rewards locking of CRV with half of the 0.04% trading fees, and uses the time value of the locked CRV to vote on the reward distribution between pools
  • Hegic rewards you with fees from options trading, provided you can stake 888,000 tokens
  • Sushi wants you to stake for xSushi to earn 0.05% of the volume traded
  • UNI controls protocol fee switch and can force early transition to an open-source license
DeFi protocols recently surpassed $1bn in total revenue (Token Terminal)
People are preferring stablecoins on Ethereum to dollars in the bank (https://duneanalytics.com/hagaetc/stablecoins)
Tokenized bitcoin on Ethereum (https://duneanalytics.com/queries/4962/9776)
Global equities 50x crypto market cap
  • lend your synthetic equity in return for a yield
  • earn trading fees
  • use it as collateral to borrow against
  • trade it for another token or
  • leave it with Yearn to earn a yield for you
Underwriting fees for IPOs in traditional finance
History of bond issuance on blockchains (Binance Research, Coindesk)
History of crypto yields before 0 B.C⁴
  • enough ETH to pay for gas each time interest rates on the lending protocols varied materially
  • an understanding of how the underlying lending protocols work
  • an understanding of the risks involved
  • a lot of time — both to check the yields and then to make the transactions
The problems with DeFi that Yearn helps to solve
Yearn’s innovations in yields
Six strategies in one vault (https://twitter.com/bantg/status/1377681238249574404?s=20)
Diagram of the first strategy, GenericLevCompFarm, shown in banteg’s tweet above
Prioritizing security from day 1
Yearn’s TVL hits $1.84b on 31st March 2021 — The Block (and banteg)

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