Yearn.Finance in Miami: Developer talks new vaults, products, and verticals

Two sweltering blocks from the gated entrance of Bitcoin Miami I managed to track down a core contributor for one of the most important projects in decentralized finance (DeFi). Flanked on all sides by clueless Bitcoiners, pseudonymous Yearn Finance vault security specialist “Doggy B” chatted with Cointelegraph about the future of the yield vault protocol — the anoles scurrying by our feet just as oblivious to the alpha being leaked as the maxis chatting about Tony Hawk and Floyd Mayweather. 

Describing without doxxing is a delicate exercise, but here goes: think a late Che Guevara beard, Unibomber sunglasses, and everything else giving off a pragmatically nondescript, “undercover FBI agent” vibe — except, of course, the pleasant and amiable demeanor.

In the 25 minutes it took to get through the gate, Doggy broke down protocol expansion, new products, and Yearn’s unique brainpower moat — all of which points to steady growth for a project that’s been firing on all cylinders as of late.

New chains, new products

As with many DeFi protocols, layer-2 has been a focus for Yearn’s developers and vault strategists. 

“A lot of the strategists have been playing with sidechains, re-deploying vaults on sidechains,” Doggy told Cointelegraph. “The vault would still be on ETH, but it would source liquidity via a bridge from the sidechain.”

The only barrier left is that the bridges between chains can often be “flaky,” as Doggy put it — taking hours or even days to process, making traders and developers antsy. In the end, he thinks that rollup solutions are where the space will largely migrate.

“I see it as practice for more ‘intense’ layer-twos like Optimism and ZK-sync. Hopefully that’s where Ethereum is going long-term.” 

He also shared that vaults are in the works that utilize decentralized exchange liquidity pool positions, a long-awaited product fraught with complications. 

“We’ve been working for a while to try and get DEX strategies to work, because you have to deal with impermanent loss,” he said.

The difficulty with these positions is in limiting downside from impermanent loss, especially at times of market volatility. Options derivatives for hedging positions was one strategy initially tested, but decentralized option platforms largely lack liquidity and the pricing makes it an impractical solution. 

The current working model is using liquidity from two vaults — say, ETH and WBTC — and combining them to create a DEX pool position as part of the underlying vault strategies, he said.

Regardless of the exact method, finding a workable DEX strategy is a priority given its one of the few sectors Yearn has yet to explore.

“Obviously it’s an order of magnitude more complex, but DEXes are the only vertical where it’s billions of dollars that we haven’t tapped yet.”