Yearn Finance Part 1: Usage of the yveCRV Vault
This is a 2-part series where I dive deep into Yearn vaults. This is part 1 where I look into the usage of the yveCRV vault before and after the introduction of the yvBoost vault. You can find Part 2 here.
What is Yearn and yveCRV?
Yearn Finance is a Defi protocol that enables users to earn yield from various strategies and one of them is through the yveCRV Vault.
‘veCRV’ is a representation of locked CRV token in Curve Finance. Curve incentivizes users to lock their CRV by giving them a portion of the swap fees through veCRV.
The addition of ‘y’ in yveCRV means CRV that is locked in Curve Finance via Yearn. Now why would one deposit their CRV with Yearn when they can do it directly on Curve? Well Yearn’s proposition is that they hold a lot of veCRV (approximately 11M worth in March this year) and the fees that they receive from their locked veCRV gets redistributed to users who use the yveCRV Vault. That simply means more yield for you since you’re leveraging on Yearn’s big locked CRV pool.
Enter yvBOOST
When users deposit their CRV on Yearn in the yveCRV pool, they receive a yveCRV token as a receipt. And this allows them to be able to claim rewards weekly in the form of Curve’s 3pool LP token called 3crv. One can sell these LP tokens or restake them to increase their deposit size in the yveCRV pool.
On April 30, 2021 Yearn announced a new vault called the yvBoost. Essentially this new vault enables automatic selling 3crv rewards for more yveCRV and thus continuously compound their stake.
Now that we’re familiar with the y vaults, it’s time to dig into the main content for this article. With the introduction of yvBoost which enables auto claiming and compounding, how does that affect the usage of yveCRV vault?
yveCRV and yvBOOST balance
Graph above shows the amount of CRV that is deposited into the yveCRV vault. The blue portion of the graph represents the days before yvBoost’s launch while green represents post yvBOOST’s launch.
Observation #1 is that the daily deposit was starting to slow down from March to May and for a month after yvBoost launched, the yveCRV pool saw a steeper increase in CRV deposits from 9M to 12M. However, this did not last long as the pool balance stagnated Mid June onwards once it reached 12M CRV tokens.
If we look at the yvBoost vault’s balance, we see it managed to accumulate 10M deposits in just 1 month after launch. If we referred to the previous graph, we see that during the same period, only 3M CRV tokens were deposited.
This shows that the 7M in deposits in the yvBoost vault most likely came from yveCRV purchased in secondary markets like in Sushiswap. With the ability to zap in tokens, deposits in the vault could also come from other assets other than yveCRV.
People are not specifically depositing into the yveCRV vault just to be able to deposit in the yvBoost pool.
yveCRV’s New Users
One of the ways to identify new users is that new users have to give permission to Yearn to perform transactions. Giving this approval costs gas and thus it is a recorded transaction. In the graph below, I mapped the approvals (synonymous to new users) given for each day to this vault.
Like in the previous graph, blue part of the graph shows the period where yvBoost is not live while green represents when yvBoost has launched. At a glance, there are 2 key spikes - one in February where the protocol officially launched and another in May where yvBoost is introduced. Clearly, introduction of new vaults spark interest.
However, interests quickly died down for both times. We do see that after yvBoost was introduced, the daily approvals seem to be higher than before up until July. To be sure, I plotted a bar graph 3 months before yvBoost and 3 months after. The results came out to be 1178 (before) vs 1700 (after), about a 44% increase in new users. We can’t conclude this increase was solely credited to the launch of yvBoost but it did play a part.
For 3 months after launch, yvBoost did bring in more users to the yveCRV pool as compared to 3 months before its launch.
yveCRV’s Number of deposits
Next, I looked at the number of deposits to the yveCRV vault.
The number of deposits are surprisingly low - dropping to only 1 deposit a day on some days in September.
The launch of yvBoost (green) did not seem to have any effect on the number of deposits.
What was strange is that the number of approvals are high but are not translated to the number of deposits. So I decided to plot those two together in the graph below.
We see that on most days, the number of approvals are higher than number of deposits. Users who have given approvals are not depositing into the vault. My suspicion is that new users did not expect that they have to pay a fee for approval. Then, when it comes to depositing, the high gas prices do not justify depositing into the vault as compared to the deposit amount - which is a shame because they’ve already spent the gas prices on approvals.
Conclusion: yvBoost brought in more users to yveCRV but did not significantly increase the vault’s deposits
While we do see a sharp increase in yvBoost in the first month after it launched, most of the deposits do not come from yveCRV - it either came from yveCRV purchased in secondary markets or zap-ins from other tokens.
We do see that yvBoost attracted more new users to yveCRV. However, that increase in new users did not lead to an increase in deposits most likely because of high gas prices.
Personally, I think Yearn products are revolutionary. It does take a bit of time to understand how they work before truly appreciating them. However, high gas prices deter a lot of people from using Yearn unless they have a big enough bag to deposit.