By Dustin Teander

This article is compiled from Messari

We all know Yearn, which is a yield aggregator that runs on top of DeFi’s yield-generating protocols such as Compound, Aave, Curve, and Convex. Users only need to click a button to passively earn income. In Yearn's Vaults, strategists are constantly competing to write the highest-yielding strategies, as they earn a 50% yield reward. Over time, the protocol has become a leading source of risk-minimized returns.

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Yearn Analysis

Let's start by breaking down Yearn's multiple offerings.

• **Vaults:** As the flagship protocol used by most users, Vaults account for 67% of Yearn TVL. Users deposit funds into vaults defined by asset and execute associated yield strategies to deploy capital. As a first iteration, the V1 vault was limited to a single strategy and has since been deprecated. V2, launched earlier this year, offers more complex yield aggregation, as vaults can be backed by multiple yield strategies.

• **Eran:** Essentially similar to a vault, but simpler. It initially focuses on stable assets that users can deposit, with assets transferred between money market protocols depending on which protocol offers the highest yield.

• **Iron Bank (IB): **IB is a money market protocol focused on serving users and protocols. Users are able to deposit approved assets as collateral, earn yields from borrowers or borrow other assets themselves. Protocol users can be whitelisted to facilitate undercollateralized borrowing.

**Special:** This is the general term for non-core business, which includes yGov and yveccurve TVL.

Yearn TVL increased significantly from March to May, adding over $4 billion in TVL. Of the new TVL, 68% (about $2.8 billion) came from the new V2 Vaults. However, since May, V2 vaults were essentially flat until mid-September, when vault TVL started to climb upwards again, increasing by more than 31% by mid-October.

Here it can be seen that the V2 Vault had two distinct periods of growth. One is the beginning of the year, roughly from March to May, and the other is the recent move that begins in mid-September. As anyone who has worked with cryptocurrencies can tell you with certainty, both of these periods were periods of massive price appreciation for ETH and BTC. Which begs the question, is this growth due to organic, new deposits, or just potential price appreciation?

Yearn has a different vault for each asset it supports. 7 vaults hold more than $100 million in deposits, accounting for over 76% of the TVL of V2 vaults. Assets backed by these vaults include stablecoins such as USDC, DAI, and USDT, as well as ETH, staked ETH, and WBTC. Dividing these vaults into stable and volatile assets and focusing on the original token volume shows that deposits are growing organically regardless of price.

Looking at the first phase of V2 growth from March to June, deposits in both stablecoins and volatile assets increased significantly. Stablecoins have grown nearly 5x during this time, adding nearly $1 billion in new TVL. ETH and stETH (yvCurve-stETH) deposits nearly tripled, adding $400,000 in new TVL.

Growth in the second period was markedly different. The number of stablecoin tokens in vaults actually declined from mid-September to mid-October, while deposits of new tokens in ETH-denominated vaults, especially yvCurve-stETH vaults, increased dramatically. Between September 15th and October 15th, over $670 million (170,000 ETH) has been added to the stETH vault. 6x increase in 30 days.

Breaking down the TVL of V2 vaults (vaults with a TVL of more than 100 million US dollars, accounting for more than 76% of V2 TVL), the recent growth trend is obvious. USDC’s TVL has decreased by 9% over the past 90 days. DAI edged up by 2%. However, ETH and stETH TVL have grown by over 118% and 109% respectively over the same time period.

Therefore, the fundamental drivers of the two growth periods of the Yearn V2 vault are different. The first phase was heavily influenced by stablecoin deposits, while the second phase was driven entirely by ETH and stETH. However, despite the different sources of growth, both phases share one characteristic - the sharpness of growth.

Throughout April, stablecoin deposits grew almost vertically. stETH and ETH have been doing the same since mid-September. The same has been true for stETH and ETH since mid-September. With such a concentrated and rapid growth momentum, another question arises - is it the result of an influx of new savers, or a small number of large savers?

After understanding the wealth distribution of the V2 vault, different groups of depositors are divided into several groups according to the amount of TVL deposited from unique addresses. For example, one group of depositors between $1 and $100,000, another group between $100,000 and $500,000, then a group of $500,000 to $1 million, and so on. Doing so revealed an apparent relationship between the types of depositors that Yearn has in its V2 vaults: wealth concentration.

Although there are more than 6,220 active depositors in the top V2 vaults, 76% of the TVL of the top V2 vaults (~$2 billion) comes from 30 addresses with deposits of more than $10 million. Depositing $10 million from one address is protocol funding.

57% of all TVL (approximately $1.5 billion) in the first seven V2 Vaults came from the integration of 18 identified partner agreements. External protocol partners are directing significant TVL to Yearn's coffers in order to re-use the generated proceeds as design components in their protocols.

Alchemix is ​​the largest depositor on Yearn, contributing nearly $600 million in TVL in yvDAI and yvWETH vaults. It alone contributes over 76% of DAI TVL and 44% of yvWETH TVL. The Alchemix protocol accepts collateral deposits, which are essentially deposited into Yearn’s yield vault. The yield generated by these collaterals is automatically used to pay users' outstanding loan debts with Alchemix.

Sushi’s BentoBox is the second largest contributor to the protocol, with over $583 million deposited in yvUSDC, yvUSDT, yvWETH, and yvCurve-stETH vaults. BentoBox is a protocol under Sushi that acts as a base layer protocol on which other protocols are built. Its main feature is the allocation of idle deposits to yield strategies - one of which is Yearn Vaults. BentoBox is the largest depositor in the yvUSDC vault, contributing one-third of the TVL of yvWETH, and nearly half of the TVL of yvCurve-stETH ($674 million).

ETH and stETH deposits are most noteworthy as they can largely be linked to an Abracadabra protocol built on top of the BentoBox app Kashi. yvWETH and yvSTETH are two of the top three collateral assets used by Abracadabra to back its stablecoin MIM.

In fact, Abracadabra (via Sushi's BentoBox) and Alchemix played a major role in the two previously identified growth stages. Originally launched in March alongside its DAI vault, Alchemix is ​​primarily responsible for massively scaling DAI on Yearn during the first phase of growth. Abracadabra’s 5x increase in TVL from mid-September is the driver of Yearn’s second phase of growth, which consists primarily of new deposits in stETH and ETH.

Another connection between the two protocols is their association with the DeFi 2.0 narrative. In order to understand how Yearn's influence has grown across the ecosystem, it is important to understand the mechanisms that drive this narrative.

In addition to protocol-controlled value (PCV) functionality, protocols typically associated with the DeFi 2.0 narrative primarily leverage Yearn’s yield vault tokens (yvTokens) as a design aspect to make existing processes more efficient. Abracadabra uses yield-yielding assets to back collateralized debt positions. Alchemix uses the Yearn rate of return to self-pay the loan. Frax uses Yearn yields to provide collateral for its stablecoin. Ribbon uses Yearn yvUSDC as collateral to sell structured option strategies.

Yearn has effectively grown from a yield aggregator for people to a major yield partner for other protocols. Yearn found most of its growth and product-market fit as a revenue-as-a-service agreement (B2B) rather than an end-user agreement (B2C).

It's not entirely out of design. Back in March, ahead of the first growth phase, Yearn announced the Yearn Partnership Program, in which protocol partners who contribute capital to the Yearn coffers earn back half of the revenue generated (after strategists get 50% ).

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Yearn's growth depends heavily on its V3 user interface (UI), multi-chain strategy, and the defensibility of its status.

Yearn’s V3 UI was recently released as a beta in September and introduced some key changes focused on improving user experience, scalability, multi-chain adoption, and B2B integration. So far, Yearn has been able to defend its position as the dominant yield aggregator in DeFi. Over the past 180 days, without any liquidity incentives, the company has achieved an industry-leading 2/20 fee model, generating the fourth largest DeFi protocol revenue.

This article comes from Tao of Yuan Universe, reproduced with authorization.

This article comes from Tao of Yuan Universe, reproduced with authorization.