Is the Yield Farming Craze Cooked? Fund Researcher Analyzes State of Crypto Moonshot YFI

The Ethereum-based decentralized finance (DeFi) movement has endured a rough three-week period in terms of price

The governance token of DeFi protocol yearn.finance, YFI skyrocketed to a high of $43,873 by mid September but has since seen a relatively steady decline in value. It’s trading at $15,541 at time of writing, according to CoinMarketCap.

Jason Choi, the head of research at crypto hedge fund Spartan Capital, says yearn.finance is too reliant on a stablecoin pool on the Curve (CRV) platform, a decentralized exchange for stablecoins.

“As the DeFi roboadvisor, yearn.finance offers 9 vaults – or collections of automated strategies – to make users money. Today, ~60% of assets on yearn are locked in the yCRV vault. What does that mean?

That means the $220 million in capital is deployed to the stablecoin pool (yPool) on Curve Finance. It farms CRV with your stablecoins, dumps CRV for more stablecoins, and thus generate a USD-denominated yield.”

According to Choi, yearn.finance’s strategy to deploy a huge percentage of its capital on the yCRV vault is hurting YFI’s chances to resume its uptrend.

“Currently the yCRV vault ($220 million) accounts for roughly 40% ($589 million) of the total value locked (TVL) of the y pool. The y pool in turn accounts for 48% of the total TVL ($1.22B) on Curve.

The bigger point here is that a higher CRV price benefits yearn.finance’s APYs, and hence revenues + YFI price…as long as yCRV vault remains a dominant strategy. But the bigger the yCRV vault gets, the more sell pressure there is for CRV.”

In addition, Choi highlights that CRV has a bearish outlook due to massive inflation, which will impact YFI’s overall price as long as it remains the dominant strategy.

To get back on its feet, the crypto researcher and investor says yearn.finance needs to diversify away from Curve, innovate beyond simple yield farming strategies, and capture revenue streams from those strategies.

On all of those fronts, Choi is confident in the project.

“Macro is uncertain (for every asset). YFI dump sucks. Part of that is because of CRV price. But Yearn has plans to diversify out of yCRV. Team has grown 20x in 3 months. New products are coming. Bullish YFI.”

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