yearn.finance is currently one of the brightest stars in the DeFi sky, scoring headline after headline and all time high after all time high. The price of the YFI token is currently moving around $35,000, about three times higher than the price of Bitcoin! yearn offers its users the best interest rates in the DeFi industry. The user’s tokens are locked in the yearn smart contract, which in turn will lock them in whatever DeFi project is currently offering the best interest rates.
Since Monday, it has also become possible to lock ETH in yearn, in return for yETH tokens. This was decided by the community in a voting on the previous day.
Crypto community expecting a rise in ETH’s price
The DeFi hype has led enthusiasts to expect the new product from year.finance to trigger a massive increase in the price of Ether. The reasoning is simple. Users will rush to lock their ETH in yearn’s smart contract, to receive interest on their deposits in return. The supply of ETH drops, which following the rules of supply and demand will make ETH more expensive.
A healthy dose of doubt is warranted in this scenario. The interest on lending ETH in DeFi DApps have never been remarkably high, unlike the interest earned on lending stablecoins. The 30 days average of the annulaized interest for lending ETH on Aave is currently around 0.2%. Centralized lenders give out by far better rates. Blockfi for example offers 4.5% annualized on ETH. It is rather unprobable that the majority here would choose the decentralized option, keeping in mind that it is also more prone to mistakes and hacks.
When blockchain gambling DApps like Fomo3D and Last Winner were on the rise a few years ago, many also thought that they would eat up a sizable portion of the ETH supply. These games basically worked by paying ETH into a pool. The last person to deposit ETH, and after a certain time elapsed with nobody else paying in, would take home the entire pool.
Nevertheless, it is impossible to know how the interest rates on ETH will develop in DeFi and whether or not it could become lucrative to lend out massive amounts of ETH. Things would become interesting if the interest rates for lending Ether on ETH 2.0 ended up higher than the staking recompensation. But until then, it could still be quite some time…