Genius Yield: The Yearn Finance of Cardano. Or something more?


  1. Capital gain — Those who buy digital assets focus on two types of return: capital gain and yield. Capital gain refers to the rise in the value of an asset. For example, a person buys one share of stock XYZ for $10. Two months later, the price of stock XYZ is now trading at $20. The buyer decides to sell their share at $20, which is 100% higher than the purchase price. The 100% increase is a capital gain. Many people buy stocks, bonds, real estate, or cryptocurrencies are hoping to make a capital gain.

The difference between the two measures is that APY takes into effect compounding, while APR does not. For example, at the start of the year you make a $100 investment in an asset that advertises a 10% APR, with interest paid to you semiannually. The periodic rate is 5% and the number of payment periods per year is 2. Let’s calculate the APR and APY.

Note: APY is higher than APR because returns include the impact of compounding. The higher number of periods that compound, the greater the difference between APY and APR. Compounding is the reallocation of realized yield for additional yield, allowing a person to collect additional interest on their initial principal plus any income already generated. If yield is realized and compounded more than once per year, APY is the most accurate measurement of yield.

Capital appreciation, is backward looking, which means it is based on the past and is historically accurate. In the previous example, the person knows the exact date and price they bought and sold the share of stock, which allows them accurately calculate their capital gain. However, the APR or APY is a forward-looking measure, which is based on future estimates. For cryptocurrencies, many factors such as supply, demand, liquidity, and fees can change the APR or APY throughout the year.

Since we have a good understanding of yield now, let’s talk about the yield available through cryptocurrencies. The three types of yields usually refer to yield farming, liquidity mining, and staking.

  1. Yield Farming — Providing liquidity to a platform in return for a portion of the fees generated by its use. LPs (Liquidity Providers) can provide their funds to a liquidity pool on a DEX (Decentralized Exchange) or a lending platform, receiving a portion of the trading or lending fees generated. Each LP can claim transaction fees generated by the liquidity pool, proportionate to the liquidity they provided to the pool. Popular DEXs on Ethereum include Uniswap and Sushiswap, where billions of dollars have been deposited by LPs to collect transaction fees. In addition, yield farming can be made from borrowing and lending platforms. MELD, one of the most anticipated DeFi protocols for lending and borrowing of crypto and fiat, plans to distribute 40% of all protocol fees to LPs.
  1. Problem — In the Cardano ecosystem, there are currently over 100 dapps (decentralization applications) in development. These include various DEXs and lending/borrowing protocols. Many of these platforms will offer LPs the chance to yield farm. For some protocols, such as DEXs, the APYs for LPs will vary based on transaction cost, liquidity, demand and supply. As the number of yield farming opportunities increase, many LPs won’t have the time or skill needed to a continually seek the highest yield for their funds.

Note: Harvesting is when a strategy or liquidity pool realizes profit, such as transaction fees or lending fees, that the LP will receive as their yield or earnings. Auto-harvesting, similar to auto-compounding, is reinvesting the LP”s realized profit back into the strategy, allowing the LP to collect interest on their realized profit. TVL, an acronym for Total Value Locked, is the total market value of assets deposited, committed, or locked to a DeFi protocol through a smart contract.

As mentioned earlier, the APYs of liquidity pools can change throughout the year based on multiple factors such as liquidity, supply, and demand. To illustrate, two weeks ago SundaeSwap’s yield farming pools had APRs around 300%. At the time of this article, the APRs have dropped to 128%. Why? LPs, seeing the high APR, provided more liquidity to the pools. LPs receive transaction fees in proportion to their liquidity provided. If total trading fees remain flat, there is less fee revenue to split among a growing liquidity pool. If the APR gets too low, some users would like to shift their funds to other yield farming opportunities. Each user would have to continuously monitor the yield on SundaeSwap’s pools while researching other opportunities. In addition to manually having to reallocate liquidity, each LP would have to stay knowledgeable about SundaeSwap’s harvesting schedule to make sure they don’t unintentionally withdraw their funds early and miss out on receiving their harvested yield. A yield optimizer could handle all of these tasks, including auto-compounding, for the LP.

  1. AI-powered yield optimizer — The yield optimizer, powered by Artificial Intelligence, will use complex algorithms to automatically allocate the users’ funds on different protocols. The yield optimizer will handle the complete allocation of each user’s funds, including depositing, exchanging, and withdrawing tokens on multiple protocols and across multiple liquidity pools. The yield optimizer implements these strategies through Smart Liquidity Vaults.

To learn more about some of the unique attributes of Genius Yield’s DEX, see my previous article here.

Figure 1: TVL of Yearn Finance $YFI from DeFiLlama, as of 2/23/2022

  1. Yield optimization — Yearn Finance offers a suite of DeFi products that provide yield farming opportunities on the Ethereum and Fantom blockchains. Launching in July 2020, its vault product that automated yield farming is widely known as the initiator of yield farming aggregators. The TVL has grown to $4 billion since its inception. Its core products include yVaults and Zap. Zap allows users to deposit your funds into certain vaults one transaction, instead of a multiple transactions, thereby saving on gas fees, which can expensive on the Ethereum platform.

Figure 2: Ethereum address distribution from Messari, as of 2/23/2022

  1. High gas fees limit participants—Ethereum gas fees can be high, reducing returns. In addition, smart contracts that require more computational work require higher gas fees. Users have to pay gas fees to the network to deposit or withdraw their funds. For example, Curve Frax is a popular yVault on Ethereum that currently has $129 million in assets and a net APY of 4.2%. Etherscan shows that over the last 90 days the median transaction fee is around $20 . If a user wanted to deposit and withdraw $1,000 to this vault over a one-year time period, the $40 in transaction fees would give eliminate his yield gain of $42, leaving him with $1,002, or at (0.2%) gain after all fees. Assuming rational participants with $10,000 or more would not use these vaults due to the high gas fees, around 75 million people would be seeking alternative sources for yield.
  1. Yield opportunities available to more users — Looking at Figure 2, over 70 million addresses hold ether valued at $1,000 or less. Due to the fees on the Ethereum platform, it is highly unlikely they can use yVaults and be profitable after paying the $10-$200 in gas transaction fees, the 20% performance fee, and the 2% management fee. However, for basic Cardano transactions, the network fee is typically between 0.16 to 0.18 ADA and current smart contract transactions are around 0.5 ADA to 2.0 ADA.
  1. Similar to Yearn-Curve vaults, Genius Yield could potentially partner with lending platforms such as MELD or others to offer yield boosting opportunities through collateralized debt positions.

Additional Sources:

Genius Yield SORS vs SundaeSwap Scoopers

Genius DEX Whitepaper Summary

Genius Yield Twitter


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