Nov 2, 2020

Video Tutorial: How to Make Passive Income with Yearn Vaults

In a previous post, we talked about Yield Farming, which basically entails hunting down the most yield offered by various DeFi (decentralized finance) platforms. As profitable as that has been for some investors, it's not the most passive way to make money. Yield farming requires you to be very vigilant in a market that's very new. It also requires you to move funds around which can be costly in fees. Yearn Vaults were developed to handle these issues. They were designed so that the community could work together to build strategies that automate the best yield farming opportunities available. The concept of Yearn Vaults is a complicated one. This is why I implore you to watch the video within this post several times. Yearn Vaults are yet another example of how the future of finance is very exciting.

What are Yearn Vaults?

Yearn Vaults are an exciting new way to make locked away crypto tokens generate the most income. Vaults enables investors to hold a token while simultaneously growing the value of their holdings. By depositing a token like Cardano (ADA) into the vault, users can earn money because yearn.finance borrows stablecoins against their deposits. The algorithm within the Vault's protocol ensures that the stablecoins picked are those with the greatest yields. Any income made above the stablecoin debt is immediately transformed into the original token, Cardano in this case, and added back into the vault. This increases the users holdings over time. Further maximizing your gains, you'll also receive native tokens based on the pool the vault has chosen. For instance, if you deposited Chainlink into the Aave pool, you will receive the native coin LINK. To see the history of amazing yields so far, visit this website.

This mechanism is quite similar to what robo-advisors do for institutional investors playing the traditional financial markets. By using Yearn Vaults, investors will see their funds automatically take the most profitable roads in the expanding DeFi universe. Though Yearn Vaults currently focuses on stablecoins, it has opened access for tokens like Ethereum (ETH). To get started, first visit Coinbase or Binance to buy the crypto coins necessary to fund your vault.

Benefits and the Risks

As mentioned above, Yearn Vault has some great benefits. The community pooling approach optimizes for the highest yielding stablecoin strategies, while saving you on time and transaction gas fees. In addition, to protect the holdings in the vault, Vault is programmed to rebalance itself and the ratios of the tokens held within.

However, please note the potential risks of this new money-making enterprise. Even though the coins deposited can't decrease, the debt of the vault can. There are mechanisms in the vault to prevent this from happening, but a bug in the system could thwart this. This is decentralized after all-- meaning everything is based on code and smart contracts, and there is no central governing body. With all this being so new, problems in the code may arise. Lastly, the Yearn Vaults have yet to be audited.

Watch the Video

The concise video below will help shed some further light on this innovative, money-making tool of DeFi. As with all things DeFi, this is just the beginning.