Compound Finance


Compound is a decentralized money market that allows users to lend and borrow supported assets, such as ETH, DAI, and USDC. The interest rate for borrowing and lending is free-floating and determined by the supply and demand of the underlying asset. Lenders supply assets to a pool of liquidity, and in exchange receive cTokens, which can later be redeemed for the underlying asset at a specified exchange rate that increases over time based on the interest earned.


Recently, Compound underwent several changes including a reduction in COMP rewards for lenders and borrowers, deployment on multiple EVM compatible chains, and a change in the lending model from pooled-risk to individual risk. The halving of COMP rewards aims to curb yield farming and encourage longer-term depositors, while deployment on other chains allows for lower gas fees and increased competitiveness. The switch to the individual risk model means that each user's collateral remains their own property and can never be withdrawn by other users, except during liquidation. This allows users to borrow a higher percentage of their collateral with a lower risk of liquidation and lower liquidation penalties.


In addition to these changes, Compound has also separated borrowing and lending collateral factors, and introduced a new collateral type called "General Collateral," which allows users to borrow any asset using ETH as collateral. This update allows for increased flexibility and liquidity in the protocol.


Overall, these governance proposals have the potential to significantly impact the way Compound operates and will be closely watched by the community.


Yearn Finance


Yearn Finance is a yield aggregation platform that was created by Andre Conje and operates on the Ethereum blockchain. It interoperates with other protocols, including Fantom, Optimism, and Arbitrum. Users of Yearn deposit their funds into vaults, which are managed by strategists who have been carefully vetted. These strategists use protocols like Compound, MakerDAO, and Curve to create automated investment strategies that aim to generate yield at a specific level of risk. Users can choose which vaults to invest in based on their desired level of risk and return.


Yearn's $YFI token was "fairly launched," meaning that there was no early allocation for the team or investors. Instead, the entire token supply (30,000 $YFI tokens) was distributed to the community through liquidity mining. Early on, $YFI holders voted to stop new token distributions, solidifying community ownership of the protocol among a smaller group of dedicated early adopters. Yearn quickly became one of the largest yield aggregators, with almost $7 billion in total value locked (TVL) at its peak.


Historically, $YFI holders had access to governance rights and claims on protocol earnings, which included a 2% management fee and a 10% performance fee. These earnings were distributed as staking rewards. However, since reaching its peak in November 2021, TVL has declined and the $YFI token has fallen from $82,000 to $8,250. In response, $YFI holders passed Yearn Improvement Proposal 65 (YIP-65), which will be implemented later this year.


Yearn is attempting to introduce the veTokenomics model that was pioneered by Curve. Under this model, holders of $YFI can lock their tokens for "veYFI" for up to four years. The weight of veYFI is linearly related to the length of the lock, with a four-year lock receiving 100% weightage and a one-year lock receiving 25% weightage. Non-locked veYFI holders do not have any governance rights. The goal of veYFI is to incentivize $YFI holders to align with the long-term health of Yearn. As a result of their commitment, as signaled by the size and length of their non-transferable lock, veYFI lockers increase their governance power and share of $YFI ownership.


Yearn's updated tokenomics are designed to align the $YFI token with long-term holders. The company is already one of the largest yield aggregators, and this update could bring even more capital into the protocol and ensure long-term success for $YFI holders. However, there are also risks to consider, as the reflexivity of DeFi can work in both directions and a bear market could have a negative impact on the token.


Sources:


https://messari.io/report/evolving-yearn-tokenomics


https://gemini.com/cryptopedia/what-is-yearn-finance-yfi-coin-yearnfinance#section-the-yearn-improvement-proposal-process


https://defillama.com/protocol/yearn-finance?showMcapChart=true


https://snapshot.org/#/ybaby.eth/proposal/0x8f7417fa5565d9f46e16618503e8808c36d51b2a9e8217a68c632d7c090d69d9


https://compound.finance/documents/Compound.Whitepaper.pdf


https://coinmarketcap.com/alexandria/glossary/rehypothecation-2


https://www.coindesk.com/tech/2022/08/26/compounds-upgraded-defi-lending-platfor...

Compound Finance


Compound is a decentralized money market that allows users to lend and borrow supported assets, such as ETH, DAI, and USDC. The interest rate for borrowing and lending is free-floating and determined by the supply and demand of the underlying asset. Lenders supply assets to a pool of liquidity, and in exchange receive cTokens, which can later be redeemed for the underlying asset at a specified exchange rate that increases over time based on the interest earned.


Recently, Compound underwent several changes including a reduction in COMP rewards for lenders and borrowers, deployment on multiple EVM compatible chains, and a change in the lending model from pooled-risk to individual risk. The halving of COMP rewards aims to curb yield farming and encourage longer-term depositors, while deployment on other chains allows for lower gas fees and increased competitiveness. The switch to the individual risk model means that each user's collateral remains their own property and can never be withdrawn by other users, except during liquidation. This allows users to borrow a higher percentage of their collateral with a lower risk of liquidation and lower liquidation penalties.


In addition to these changes, Compound has also separated borrowing and lending collateral factors, and introduced a new collateral type called "General Collateral," which allows users to borrow any asset using ETH as collateral. This update allows for increased flexibility and liquidity in the protocol.


Overall, these governance proposals have the potential to significantly impact the way Compound operates and will be closely watched by the community.


Yearn Finance


Yearn Finance is a yield aggregation platform that was created by Andre Conje and operates on the Ethereum blockchain. It interoperates with other protocols, including Fantom, Optimism, and Arbitrum. Users of Yearn deposit their funds into vaults, which are managed by strategists who have been carefully vetted. These strategists use protocols like Compound, MakerDAO, and Curve to create automated investment strategies that aim to generate yield at a specific level of risk. Users can choose which vaults to invest in based on their desired level of risk and return.


Yearn's $YFI token was "fairly launched," meaning that there was no early allocation for the team or investors. Instead, the entire token supply (30,000 $YFI tokens) was distributed to the community through liquidity mining. Early on, $YFI holders voted to stop new token distributions, solidifying community ownership of the protocol among a smaller group of dedicated early adopters. Yearn quickly became one of the largest yield aggregators, with almost $7 billion in total value locked (TVL) at its peak.


Historically, $YFI holders had access to governance rights and claims on protocol earnings, which included a 2% management fee and a 10% performance fee. These earnings were distributed as staking rewards. However, since reaching its peak in November 2021, TVL has declined and the $YFI token has fallen from $82,000 to $8,250. In response, $YFI holders passed Yearn Improvement Proposal 65 (YIP-65), which will be implemented later this year.


Yearn is attempting to introduce the veTokenomics model that was pioneered by Curve. Under this model, holders of $YFI can lock their tokens for "veYFI" for up to four years. The weight of veYFI is linearly related to the length of the lock, with a four-year lock receiving 100% weightage and a one-year lock receiving 25% weightage. Non-locked veYFI holders do not have any governance rights. The goal of veYFI is to incentivize $YFI holders to align with the long-term health of Yearn. As a result of their commitment, as signaled by the size and length of their non-transferable lock, veYFI lockers increase their governance power and share of $YFI ownership.


Yearn's updated tokenomics are designed to align the $YFI token with long-term holders. The company is already one of the largest yield aggregators, and this update could bring even more capital into the protocol and ensure long-term success for $YFI holders. However, there are also risks to consider, as the reflexivity of DeFi can work in both directions and a bear market could have a negative impact on the token.


Sources:


https://messari.io/report/evolving-yearn-tokenomics


https://gemini.com/cryptopedia/what-is-yearn-finance-yfi-coin-yearnfinance#section-the-yearn-improvement-proposal-process


https://defillama.com/protocol/yearn-finance?showMcapChart=true


https://snapshot.org/#/ybaby.eth/proposal/0x8f7417fa5565d9f46e16618503e8808c36d51b2a9e8217a68c632d7c090d69d9


https://compound.finance/documents/Compound.Whitepaper.pdf


https://coinmarketcap.com/alexandria/glossary/rehypothecation-2


https://www.coindesk.com/tech/2022/08/26/compounds-upgraded-defi-lending-platfor...

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