Stablecoin Yield Farming

The launch of Curve.fi’s y pool was a watershed moment for DeFi. It introduced the LP token yCRV, which was the first asset of its kind to enable holders to earn yield from two different sources simultaneously: interest from lending pools, and LP fees from an AMM pool.

yEarn (formerly known as iEarn) pioneered the notion of a “smart” stablecoin which optimized lending pool yield, and Curve extended it to add:

1. Basketing for diversifying yield across different stablecoins to avoid needing to swap between coins to optimize interest yield.

2. Additional yield in the form of 4 bps per trade.

With the second coming of Andre Cronje, yEarn introduced the concept of Vaults. Designed to combat the high barrier to entry for yield farming (due to gas costs), yEarn’s yVaults allowed users to deposit stablecoins in a pool managed by an on-chain yield farming strategy, effectively allowing gas costs to be subsidized by economies of scale. This led to the creation of the USDC vault, and shortly thereafter the yCRV vault. Today, there is a yVault for every major stablecoin.

These vaults enabled users to participate in yield farming strategies without having to worry about gas costs, and gave rise to yet another source of stablecoin yield. Today, the yVault token yyCRV is one of the highest yielding wrapped stablecoins to-date. Providing its holders with the combination of lending pool interest, AMM LP fees, and yield farming returns. Since yyCRV has become so popular that it has been renamed to yUSD. As of this writing, over 220 million yUSD tokens have been minted, providing an annualized yield of over 84% to depositors.

yVault stablecoins represent the highest passive yield that can be earned on stablecoins today. However, there is no liquid market for the likes of yUSD — even Uniswap only has about $400k of liquidity for yUSD.

Exiting yVault positions can be costly as well. Withdrawing stablecoins from V1 vaults incurs a 0.5% withdrawal fee, and can incur additional fees in the form of high gas costs if the requested funds need to be withdrawn from the strategy contract. These gas costs can sometimes be hundreds of dollars, depending on gas prices.