Difference between revisions of "Yield optimizer"
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A yield optimizer, sometimes referred to as a yield aggregator, is an automated service that takes the reward token from a [[yield farm]], sells the reward token and automatically buys more of the type of token deposited in the vault. | A yield optimizer, sometimes referred to as a yield aggregator, is an automated service that takes the reward token from a [[yield farm]], sells the reward token and automatically buys more of the type of token deposited in the vault. | ||
The yield optimizers (or aggregators) with the most liquidity are protocols like [[Beefy Finance]] and [[Yearn Finance]]. These protocols offer strategies like providing liquidity to a DEX pool and using money markets to earn yield on single tokens. This last strategy, in particular, involves depositing a token as collateral on a money market, earning interest on that (+ eventual liquidity mining rewards) and then borrowing the same token (thus avoiding liquidation risk, since the same asset is used as collateral) to redeposit it in the lending side, increasing the rewards. | The yield optimizers (or aggregators) with the most liquidity are protocols like [[Beefy Finance]] and [[Yearn Finance]]. These protocols offer strategies like providing liquidity to a DEX pool and using money markets to earn yield on single tokens. This last strategy, in particular, involves depositing a token as collateral on a money market, earning interest on that (+ eventual liquidity mining rewards) and then borrowing the same token (thus avoiding liquidation risk, since the same asset is used as collateral) to redeposit it in the lending side, increasing the rewards. | ||
Yield optimizers allows users that are less active in managing DeFi investments to capture the upside of short-term/medium-term strategies. Protocols invest in hiring and maintaining strategists that ensure user funds are always farming good consistent yields across multiple chains. Protocols also invest in auditing so they might be a safer choice for users that don't have time to audit all other protocols involved in yield farming. | |||
== Related Technical Standards == | == Related Technical Standards == | ||
The Ethereum Improvement Proposal EIP-4626 proposes a standard that allows for the implementation of a standard API for tokenized vaults representing shares of a single underlying ERC-20 token. <ref>https://eips.ethereum.org/EIPS/eip-4626</ref> | The Ethereum Improvement Proposal EIP-4626 proposes a standard that allows for the implementation of a standard API for tokenized vaults representing shares of a single underlying ERC-20 token. <ref>https://eips.ethereum.org/EIPS/eip-4626</ref> | ||
Revision as of 22:45, 25 April 2022
A yield optimizer, sometimes referred to as a yield aggregator, is an automated service that takes the reward token from a yield farm, sells the reward token and automatically buys more of the type of token deposited in the vault. The yield optimizers (or aggregators) with the most liquidity are protocols like Beefy Finance and Yearn Finance. These protocols offer strategies like providing liquidity to a DEX pool and using money markets to earn yield on single tokens. This last strategy, in particular, involves depositing a token as collateral on a money market, earning interest on that (+ eventual liquidity mining rewards) and then borrowing the same token (thus avoiding liquidation risk, since the same asset is used as collateral) to redeposit it in the lending side, increasing the rewards.
Yield optimizers allows users that are less active in managing DeFi investments to capture the upside of short-term/medium-term strategies. Protocols invest in hiring and maintaining strategists that ensure user funds are always farming good consistent yields across multiple chains. Protocols also invest in auditing so they might be a safer choice for users that don't have time to audit all other protocols involved in yield farming.
Related Technical Standards
The Ethereum Improvement Proposal EIP-4626 proposes a standard that allows for the implementation of a standard API for tokenized vaults representing shares of a single underlying ERC-20 token. [1]