Yearn Finance’s ‘Backscratcher’ Vault Aims to Replenish Lost Liquidity

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In Brief
  • Yearn's new 'backscratcher' vault locks CRV tokens for four years.

  • Yearn Finance liquidity has dropped 63% in the past two months.

  • The promise of long-term returns may help to replenish collateral.

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The latest liquidity farming pool from Yearn Finance has been launched as the DeFi protocol restructures and adds new incentives.

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Total value locked across the entire DeFi ecosystem is at an all-time high of $12.65 billion today, but not all protocols are enjoying the flow of collateral.

Yearn Finance, for example, has lost 63% of its cryptocurrency collateral which has fallen from $967 million in early September to $354 million today according to DeFi Pulse.

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Popular vaults such as yETH have proved unsustainable as yields plummeted from 90% to less than 1% resulting in an exodus of liquidity. Today, that vault has been closed to deposits and is only yielding a paltry 1.3%.

Many wanting to withdraw will likely have found themselves out of pocket when considering current gas fees combined with the 0.3% withdrawal fee.

The DeFi protocol has restructured some of its vaults and the latest offering is a yveCRV ‘backscratcher’ vault.

Yearn Finance Introduces ‘Backscratcher’ Vault

A cryptocurrency analyst going by the Twitter handle Ceteris Paribus (@ceterispar1bus) has delved into the new vault, claiming that it is a more positive-sum approach compared to farms being parasitic to one another.

The idea is to establish a vault with restricted withdrawals or locks — in this case, for a four year time period. Depositors would gain yields from both veCRV four-year lock return, in addition to a small percentage of all boosts to stablecoin and Bitcoin Curve vaults.

The protocol explained why it needed to leverage Curve and increase locked liquidity in order to provide these better returns;

“Optimal use of Curve remains the key yield farming strategy for several pools today. Yearn needs a huge and growing pool of locked veCRV to support high yields across multiple vaults as deposits of stablecoin and bitcoin increase.”

veCRV is short for voting escrow CRV and is a token used for governance proposals and pool parameters in the Curve Finance DAO. CRV token holders receive veCRV tokens by locking up their CRV tokens, and Yearn Finance now provides the new pool offering additional rewards for long-term lockup.

Yearn’s three other CRV vaults will also get a yield boost from the ‘backscratcher’ vault — hence the name.

Four Years Too Long?

Considering that DeFi has moved so fast this year and that liquidity pools, governance tokens, and protocols have come and gone in the span of just a few months, a four-year lockup may be asking a lot from those that do not have huge bags to throw around.

However, the veCRV token balance has increased by almost two million in the past few days, so many must feel that the incentive is a positive addition.

Disclaimer

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Martin has been covering the latest developments on cyber security and infotech for two decades. He has previous trading experience and has been actively covering the blockchain and crypto industry since 2017.

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