Jul 292020
how to buy YFII token

This is a guide on how to buy YFII token, a fork of the original YFI DeFi Token. If you are looking to buy YFI instead, check out this guide or our guide on how to buy DeFi tokens without KYC.

YFII is a fork of the original YFI project from Andre Cronje by a community within the original YFI community. The split occurred mostly over the proposal “YIP-8” in the original YFI community. The YFII community adopted this proposal whereas the original YFI community rejected it (it did not reach the required quorum). The proposal essentially continues yield farming rewards on a weekly halving schedule (10,000 YFII in week 1, 5,000 YFII in week 2 and so on)

So why care about YFII? In many ways, YFII has retained the original ethos of the YFI project namely there is no developer pre-mine (i.e. no YFII is allocated to the dev team – they need to farm or buy it like everyone else), there are no VCs or advisors or any other sort of entities that want to dump on the community.

The biggest contention about YFII in the original YFI community seems to be around not forking the holders of YFI, i.e. YFII is starting the community from scratch instead of starting from a point where holders of YFI also hold YFII. Depending on your point of view, this may be good or bad – good because the project can develop without the baggage of YFI holders and bad because the original YFI community has no stake in YFII.

Also, please do your own research into YFII and smart contract safety – several prominent “western” crypto companies like etherscan, metamask, and even Balancer have put phishing warnings against YFII – something the emergent YFII community (a lot in China) is vehemently opposed to. Balancer in fact completely removed the YFII pool from their frontend (without any input from BAL “governance token” holders), a controversial decision to say the least.

Update: After some Twitter wars and lots of back and forth, all of them have partially relented – for example Etherscan simply lists YFII as “high risk” and Balancer has brought back the YFII pool on the frontend with a warning instead of outright censorship.

How to Farm YFII

Before we discuss buying options for YFII, it would be better to mention the ways you can farm YFII (again, please do your own due diligence around smart contract safety).

As of this writing, there are two ways you can farm YFII:

  • Staking yCRV (yTokens in the Curve y pool) via the staking contract at yfii.finance (note that at the time of this writing, MetaMask still shows a phishing error and doesn’t even let you access the site).

If you don’t want to farm or limit your risk exposure to YFII via farming, you can of course just buy the token. There is a community-written guide that has more information on farming YFII.

How to Buy YFII

There are a few options available to buy YFII right now:

Update: 1inch has natively integrated YFII so you’ll get the best price and execution there. Sometimes you get better price on Uniswap and sometimes on Balancer depending on the order size and pair. For example, here is a trade going from 10,000 RLC to YFII on 1inch

Keep an eye out on YFII – the farming yield APY is over 1000% in the second pool right now, and trade volume is $1.5 Million on Uniswap YFII/ETH pool so far just in the last 24 hours.

With the recent price increase in YFI, YFII seems to be having a resurgence as well. See our post on the bull case for YFI if you want to learn more about this model.

Important Resources

Since there seems to be a lot of censorship going on, here are the major details about YFII (again – do you own research and due diligence)

Jul 252020
Understanding YFI token DeFi

This guide will help you understand what the YFI token from yearn.finance is, what the role of the token is, its economic and governance rights and future potential and an explanation of how yTokens work. If you are looking to buy YFI, please read our guide on how to buy YFI.

What is YFI Token?

YFI token is the governance and economic layer on top of the yearn protocol, which is a suite of smart contracts that track the best yields on underlying assets.

YFI token was released to the world in the fairest possible launch:

  • There was no pre-mine
  • No ICO – not a single token was sold by the team before launch
  • No VCs – the bane of a lot of crypto projects
  • No “advisors” to shill the token on Twitter and make money by dumping their bags on you
  • No developer allocation. Yes, really.

The most interesting thing? It is all built by a single developer, Andre Cronje!

If you want to buy YFI, you want to do this for two purposes:

  • Govern the protocol by setting parameters on everything from inflation rate to protocol fees.
  • Earn fees from “assets under management” based on how well the protocol does in providing returns.

Unlike other vaporware tokens like BAL from Balancer which are a promise of future governance and have a marketcap of $1 billion fully diluted with literally 0 economic utility (and currently 0 governance utility as well), YFI has both governance and economic utility since launch. As the assets under management for yTokens goes up, the value of YFI also goes up and holders can expect a real non-speculative return.

YFI has been steadily going up in price over the last week since launch. A passionate community has formed around it and is building tools from governance to returns trackers.

What are yTokens?

Let us also understand what yTokens are. yTokens are simply wrappers around existing tokens, currently stablecoins. Therefore ydAI is a wrapper around DAI, yUSDT is a wrapper around USDT, yUSDC is a wrapper around USDC, and yBUSDC is a wrapper around TUSDC.

But what does this wrapper do? Simply put, it takes the underlying asset, like DAI, and finds the best possible yield for that asset. So for example if Aave yields 8% on DAI and Compound yields 6%, then yDAI would move your DAI into Aave. yTokens are ‘yield optimized tokens’ based on the underlying.

Therefore, you don’t need to worry about trying to track aDAI vs. cDAI and where you can get the best returns. The yearn protocol automatically does this for you. Since it is currently managing a few hundred million dollars, it can move around large sums of money without gas being an issue either.

Things get more interesting with the yield farming and liquidity mining incentives, so that yTokens can actually be much more powerful than simply yield seeking instruments, but can combine yield maximizing based on yield farming. A lot more of this will become a reality in V2, slated to be released in a few days.

In a nutshell, yTokens are super-charged DeFi wrapper tokens that seek out the best yield for you. Therefore if you are new to DeFi or don’t want to spend every waking minute of your existence refreshing twenty web pages to track everything, just let yearn do its thing while you sit back and enjoy your yield.

What is yCRV

A quick detour into yCRV is warranted. This was the first pool where you could “mine” for YFI at launch. Essentially, it is a stablecoin pool (therefore well suited for Curve) on Curve where you can trade between different yTokens derived from USD stablecoins, i.e. yDAI, yUSDC, yUSDT, yTUSD.

You can think of the yCRV pool tokens as a basket of yield maximizing stablecoins, but in addition they also accrue liquidity provider fees on Curve! Pretty neat.

Jul 192020
Buy YFI token yield farming defi

This is a guide on how to buy YFI token from yearn.finance team. YFI is a really interesting DeFi token, which helps regular users utilize the full power of Decentralized Finance (DeFi) tools, including the now famous “yield farming”. This means you can simply own, for example yDAI, and get exposure to all yield farming opportunities from Compound to Balancer while also maximizing your yield in the process.

The YFI token is also interesting in that it is pretty much run and created by a single developer, Andre Cronje. This just shows how much impact a single developer can have on the entire ecosystem and create a protocol worth tens of millions of dollars on other money legos already built on Ethereum.

YFI is gaining momentum because it has proven to be a truly bottoms-up community driven project. There is no pre-mine or pre-sale or VCs or ‘thought leaders’ or other shenanigans. What is remarkable is that Andre, the developer, doesn’t even have any YFI reserved for his own work! That has attracted a lot of passionate community members to become stewards of the project.

After you’ve learned the basics, it is time to start learning how to buy YFI tokens. However, before that, let’s first learn about how to “farm” YFI tokens. Farming YFI tokens may be a better strategy than buying YFI tokens for some people. This is especially true for those who are ‘liquid’ in USD or DAI since most of the pools and farming opportunities for YFI are based on DAI and not ETH.

How to Farm YFI

At launch, there were three ways to farm YFI –

  • On Curve, with the “Y” tokens (original reward completed)
  • On Balancer, with the 2/98 YFI/DAI pool (original reward completed)
  • On Balancer with the YFI/yCRV pool (reward expired on July 26, 2020)

The YFI governance then decided against continuing the program. Therefore, all rewards have now expired and you can no longer farm YFI. The only way to get YFI is to buy it from exchanges, i.e. from someone who has YFI. This is also why YFI is capped at 30,000.

How to Buy YFI

There are several places you can currently buy YFI via Decentralized Exchanges without account creation/KYC etc.

Step-1: Check YFI price on 1inch. 1inch is a crypto price aggregator that finds the best trade execution for you, i.e. the cheapest price. It does this by converting your crypto to YFI via any number of routes via any number of decentralized exchanges. Of late, their private market makers also provide better price than single exchanges, thus saving you even more money. The only downside is the gas costs tend to be high.

Step-2: Enter the crypto you want to sell in order to buy YFI. The good thing with 1inch is it takes care of all the conversion for you. For example, if you want to diversify out of LINK and buy YFI you can do this in one step. Same with even lower trade volume cryptos like RLC or other popular pairs like USDC or DAI.

Step-3: Connect your Web3 wallet. 1inch works with any popular wallet like MetaMask. No need to create an account or sign up to their services.

Step-4: Execute your trade. The YFI will show up in your wallet.

1inch is really good with converting the crypto you have via the best possible execution via multiple decentralized exchanges. For example, here is an example of their ‘Pathfinder’ algorithm – something very hard to replicate manually.

Pathfinder on 1inch for best trade execution

We suggest using DeFi exchanges like Uniswap, Balancer, and Kyber instead of centralized exchanges since you can execute the trade directly from your Web3 wallet like Metamask or Ledger instead of going through account creation, KYC, withdraw limits, etc.

All of these can be accessed via MetaMask. If you have a decent sized crypto portfolio, make sure to use a hardware wallet like Trezor or Ledger, which you can easily connect via MetaMask.

Alternately, currently the deepest liquidity pools for YFI are on Uniswap and Balancer, so you can also buy directly from them, although you should probably still check 1inch if there is a better price (there usually is).

If for some reason you don’t want to use decentralized exchanges above (e.g. if you are not a part of the Ethereum ecosystem and perhaps want to buy directly from BTC) then these are the centralized exchanges where you can buy YFI with your BTC.

Update: YFI is now listed on Binance with YFI/BTC and YFI/BNB pairs. If you already use Binance but don’t use DEXes on Ethereum yet, this may be the easiest way to get exposure to YFI.

Update-2: YFI has started trading on Coinbase Pro! You can sign up to Coinbase and automatically access Coinbase Pro to trade YFI. You can also buy YFI on Coinbase. Note however that Coinbase charges high fees so you are generally better off buying YFI on Uniswap or 1inch.

Buying YFI starting from fiat (like USD)

In the methods above, you need to start from crypto, like ETH, to buy YFI. If all you have are dollars or your local fiat currency, you can follow these steps –

  • Buy ETH from Coinbase (use this link to get $10 when you purchase $100 of crypto).
  • Transfer this ETH from Coinbase to MetaMask (or another Web3 wallet).
  • Go to 1inch to exchange your ETH to YFI via decentralized exchanges without having to sign up for anything.

YFI is an ERC20 token on Ethereum, so you can store it in your Ethereum wallet like MetaMask. For larger sums, you can store your YFI in Ledger or Trezor, which are hardware wallets and provide much better security than a browser extension.

Also read our bull case for YFI

Jul 132020
Trading Defi tokens

Here is a guide to buying “DeFi” tokens like $COMP, $BAL, $CRV, $REP, $AAVE, $KNC, $BNT, $LRC, etc. without having to go through KYC or time-consuming registration processes.

Decentralized Finance, or “DeFi” for short, has seen an emergence on Ethereum over the last few months. Many investors are now looking to get exposure to this area via DeFi tokens. Several tokens like COMP from Compound, a lending protocol, and BAL from Balancer, an automated market maker, currently trade at valuations of over $1 billion (fully diluted marketcap).

If you don’t care about KYC or prefer using a centralized exchange, go with the ones that are most trusted, like Coinbase. Coinbase actually lists a lot of these DeFi tokens like KNC, COMP, etc. In fact, Coinbase listed COMP even before Binance did!

You may of course be familiar with many “Decentralized Exchanges” or “DEXes” for short, like Uniswap, Kyber, Balancer, etc. However, we don’t recommend going through these to get the best price. This is because at any given time, there is price variation between them. Also, there are nuances, such as Uniswap V1 vs. Uniswap V2. Finally, there are exchanges that you may not know about or forget to check.

Instead, we recommend going through an aggregator because it can not only find you the best price but also the best way to route the order. If your order is large, it would get the best price when you use multiple exchanges and orderbooks in one transaction. In addition, aggregators are able to use exchanges like Bancor that may be restricted in your country (like the US).

Among all the aggregators we’ve reviewed, we recommend going through 1inch. The team is highly competent technically (they find smart contract bugs in other projects!) and they deliver at a high speed. They also build new amazing features like the Pathfinder which can compute order routing and paths that other aggregators can never find (such as multiple hops to get to your desired output currency)

Step-1: Go to 1inch exchange and connect your Web3 wallet like MetaMask. Here is what it looks like – specifically, take note of all the exchanges that they connect to.

Step-2: Enter the tokens you with to buy, and with what token. This is where 1inch shines. Here, I am trying out a test trade to sell 200 COMP for LEND. 1inch gives me 145,068 LEND for this trade whereas the best individual exchange, Uniswap, only gives 141,053 LEND.

Why this difference? You can see when you hover over the Pathfinder algorithm

As you can see, this is a fairly sophisticated order routing that would be quite hard if you were to manually try to do this.

Step-3: Just hit ‘Swap Now’ and you’ll be all set. You may need to ‘Unlock’ your tokens for trading, which is something you need to do for any DEX trading ERC20 tokens.

1inch actually gives you the option to unlock the exact amount of tokens or ‘infinite approval’. If you’re security minded or trade large volumes, take the first option because if you take the second option, you are taking on smart contract risk (the 1inch smart contract will have authorization to spend infinite COMP on your behalf in this case). Exchange like Uniswap only allow for infinite approvals, so 1inch is a step up for security. However, the downside is you need to approve tokens every time you trade. If you trade often, infinite approvals might just be the way to go.

This is how you get the best prices for DeFi tokens and trade these without worrying about KYC and your identity getting stolen in an exchange hack.

Jun 042017

Bancor Token Exchange

This is part-2 of our series exploring the new Bancor protocol. You can find part-1 here, where we discussed how the Bancor protocol allows for the proliferation of user-generated tokens while providing the tokens liquidity at the same time through a decentralized exchange on Ethereum via the use of smart contracts (so no counterparty risk like in an exchange).

Here, we discuss how the Bancor protocol can be used for the decentralized token exchange economy not just for newer community-type tokens, but for well-established crypto-tokens on Ethereum as well. We’ll also talk about how this ties into the token asset management space that other projects like Melon and working on.

First, let’s talk about creating a decentralized exchange via the Bancor Protocol.

Decentralized Exchange via Profit Arbitrage

There have been several attempts at creating decentralized exchanges. Many of them rely on external gateways that transfer the assets on the blockchain into ‘real world’ currencies. However, these still have a counterparty risk involved. These include examples like Waves or Bitshares that have a “DEX” (Decentralized Exchange) built into their products, but with the use of external gateways.

However, what Bancor is building is something different. It has the elements of price discovery outside of the decentralized exchange, which then drive the price discovery on the blockchain. The actual exchange mechanism itself is completely decentralized, and doesn’t rely on any external third-party ‘guaranteeing’ assets on the blockchain to be a certain value.

The way this works is through simple price arbitrage. There’s a smart contract that triggers the exchange of one crypto-asset into another. If the relative prices go out of whack by a lot, then arbitrageurs enter the market, and buy the relatively undervalued asset while selling the relatively overvalued asset, while offsetting their positions with the external exchange. This is the key to how the Bancor protocol enables decentralized asset exchange. The smart contract itself has no concept of a price. Instead, the assumption is that the price is determined not by price feeds but by arbitrageurs who have an economic incentive to get the prices in balance, otherwise they can make a riskless profit.

In terms of the actual implementation, like with Token Issuance, there is a certain amount of crypto-assets in reserve. However, these are full reserve as opposed to fractional reserve, and there are two crypto-assets instead of one. Now you’ve created a trading pair. No need of any external exchange.

I believe another important characteristic of the Bancor Protocol is that it enables the creation of new asset pairs that is market determined as opposed to exchange determined. Today, say if you want to use Augur as your base trading pair, you’ll be hard pressed to find an exchange offering you Augur trading pairs. However, with Bancor, you can easily create one by keeping Augur and another crypto-asset fully backed in the smart contract. This way you’ve created an Augur trading pair.

Asset Management and Crypto-ETFs

Another less appreciated aspect of the Bancor protocol is that it enables the creation of crypto-ETF like assets, without any centralized trust component, i.e. only via smart contracts. This will become increasingly important as crypto-assets become a genuine asset class on to themselves. The way Bancor envisions ETFs is the creation of multiple reserve assets in the smart contract, with a 100% backing instead of fractional reserve.

These smart tokens will become an essential part of the portfolio from an investment point of view. Already, companies like Iconomi are working on creating crypto-index funds. However, the ICNX that is created by Iconomi is completely centralized. With the Bancor protocol you can do the same (although for now only with Ethereum-based tokens) in a decentralized manner and just hold units of account in the smart contract that contains the tokens in reserve.

I predict that ‘theme-based’ investing in crypto will become common too. For example, think prediction markets will be the next big thing? There will be a crypto-ETF with Augur’s REP and Gnosis’ GNO tokens. As the scope of projects keeps expanding, this will become more important for investors that don’t want to take chances on individual companies but instead on the market potential.

Photo Credit: normanack

Jun 012017

Bancor Protocol

Bancor is building a really interesting economic framework that would make it easier to obtain price discovery for thinly-traded tokens. The goal of the Bancor Protocol is to allow for the creation of whole new types of token economies that may never otherwise have a price, because exchanges aren’t interested in adding thinly traded tokens. With the implementation of the Bancor Protocol, tokens can already have a source of price discovery and liquidity without there being any need to add them on external exchanges.

Economics of Token Issuance

At the heart of the Bancor Protocol lies a smart contract that is able to exchange specific crypto-tokens (called ‘Smart Tokens’ in the whitepaper) for an underlying asset. An important point to remember is that the underlying isn’t tied one-to-one to the Smart Token. Instead, only a certain reserve ratio is in place.

If there is a token issuance that uses the Bancor protocol, the following are the key parameters –

  • Money in Reserve – this is ETH or an ERC20 token in reserve with the smart contract. It can also be a combination of one, two, or many of these tokens.
  • Reserve Ratio – this is the ratio of reserves (in the form above) held in the smart contract. For example, if a Smart Token has a supply of 100, with a total of 100 ETH priced in, and an ETH reserve ratio of 25%, it means 25 ETH will initially sit in the smart contract.
  • Smart Token Supply – this is the total supply of the smart tokens being issued. In the example above, since we issued 100 Smart Tokens, that’s the total token supply.
  • Theoretical Total Reserve – this is the theoretical limit of ETH or another ERC20 token backing the Smart Token Supply. Note that this is simply given as the actual Money in Reserve divided by the Reserve Ratio. In our example, 25 ETH is the money in reserve, and the Reserve Ratio is 25%, so the Theoretical Total Reserve is 25/0.25 = 100 ETH.

It is important to note that the Theoretical Total Reserve described above is not the amount sitting in the smart contract. The smart contract only has this amount multiplied by the Reserve Ratio. The idea is that of a fractional reserve – in efficient markets, the reserve would never go dry because the price adjusts depending on the interaction with the smart contract (we’ll discuss price discovery and price movement mechanisms below).

If the Reserve Ratio is 100%, then the token and underlying would move together, i.e. if you issue 100 tokens backed by 100 ETH in the smart contract that can be withdrawn at any point of time, then the downside is limited to 1 token per ETH. However, things start to get interesting when the Reserve Ratio is less than 1.

Pricing and Economics Between Reserve Tokens and Smart Tokens

Before we discuss pricing-specific details, let’s outline why you would like to have a Reserve Ratio of less than one in the first place. Say there’s a token sale that raised 1000 ETH. The team can announce that 25% of this will be held in reserve, and the rest 75% will be used for their operating and capital expenses. This causes the price of the Smart Token to instantly float against ETH. Say 10,000 Smart Tokens were issued, which would mean a price of 0.1 ETH. Now due to there being a reserve, although the initial price is 10 Smart Tokens per Ether, the actual price can float even without it being added to external exchanges like Poloniex or Bittrex or even decentralized exchanges like EthDelta or Waves/Bitshares DEX.

So how does it work? Simply put, each time you buy the Smart Token by paying ETH into the smart contract, the price increases. Each time you sell the Smart Token and take ETH out of the smart contract, the price decreases. The magnitude of the increase or decrease is independent of whether you do one transaction or break it up into multiple transactions. This way, if there’s demand for the Smart Token, you can simply get it by exchange ETH from the smart contract. The price the smart contract quotes you is a cumulative value calculated based on all the previous buys and sells in the past.

Things get more interesting when external exchanges also list the Smart Token. Now there is a clear arbitrage opportunity between the floating exchange rate quoted by the smart contract and the exchange rate on exchanges. People can buy the Smart Tokens from two sources, and in efficient markets, the prices would come to parity. If not, someone can exploit the arbitrage opportunity and make a profit.

Bancor has some really interesting economics and game theory behind it. We look forward to the product being released and see how it affects the token issuance market.

Photo Credit: Flickr