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26 September 2023
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Analysis: Ethereum’s Yearn.finance (YFI) is one of the cheapest coins in DeFi

YFI, the native governance token of the DeFi protocol Yearn.finance, has rapidly become a prominent cryptocurrency despite just launching weeks ago.

It made headlines for seemingly being the first cryptocurrency to appreciate 100,000 percent in a week. It also made headlines for becoming the first reputable altcoin to pass the price of Bitcoin. YFI now trades for $13,500, having surged to $16,500 last week.

Chart of YFI’s price action over the past three weeks. Source: YFI/USD chart from TradingView.com

What’s especially absurd about YFI’s ascent is that the creator, Yearn.finance developer Andre Cronje, launched the token with the premise that the cryptocurrency literally has “zero value.” YFI now has a market capitalization rivaling some of the top crypto projects in existence.

Even after this record-setting rally, analysts say that the cryptocurrency may be undervalued, at least when compared against other altcoins in its class.

Messari analyst: YFI may be undervalued relative to other DeFi projects

Core to the Yearn.finance protocol is a DeFi concept called “Vaults.” Vaults are pools one can deposit certain cryptocurrencies into (most stablecoins are supported) to earn a yield on their holdings; yields are generated by a “controller” utilizing the best yield farming strategies for the cryptocurrencies in the pools.

Although Vaults have been of great benefit to those that use the service, offering yearly returns of 9-90 percent, Vaults are also beneficial to holders of YFI as they charge withdrawal and performance fees on user holdings, which get sent to a treasury controlled by YFI holders.

According to an analysis by Messari analyst Ryan Watkins, Yearn.finance “currently produces cash at a rate of just over $21 million annualized.” The analyst explained that this means that YFI, because it can control and gain access to the capital in the pool, has a price-to-sales multiple of around 20 times.

This makes YFI the cryptocurrency with the lowest price-to-sales multiple in the decentralized finance space except for Terra (LUNA), which touts a 17 times multiple.

To put YFI’s valuation into perspective, here are the price-to-sales multiples of other DeFi coins:

  • Bancor: 22 times
  • Compound’s COMP: 32 times
  • Balancer’s BAL: 56 times
  • Maker: 740 times
  • Curve DAO token: 1,568 times

Other fundamentals could push the coin higher

Watkins compiled this analysis with Yearn.finance’s current functions as a protocol, but with developments spearheaded by Andre Cronje, YFI holders may continue to see their earnings increase.

Due to demand for insurance in the DeFi space, which has been riddled with bugs and hacks over the years, Cronje is working on a new project for the Yearn.finance protocol called yinsure. The product will be structured to allow more value to flow into the Yearn.finance ecosystem.

Investors say that insurance in DeFi is not a trend that should be ignored. Paradigm co-founder Fred Ehrsam commented in a blog earlier this month:

“Crypto-native insurance – on-chain insurance covering protocols and DAOs – has the potential to be the next big financial primitive in DeFi. The market size could be enormous and the initial wedge is credible.”

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