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Yearn Finance – A Multi-Strat Fund Grows Up (In Six Months)  

Yearn Finance (yearn.finance) continues to dominate the decentralized yield aggregation industry with total value locked of $650 million and projected annualized yield across all of its vaults and strategies of 9.08% (figures through 11/30/20 and available at yearn.finance/stats). Just this week alone, Yearn announced four separate synergies/mergers with sizable DeFi protocols:

(1) C.R.E.A.M. - Yearn merged with lending platform C.R.E.A.M. (cream.finance) which will assist Yearn in launching their new StableCredit vault – an investment strategy which will combine the key components of the decentralized finance infrastructure: (a) synthetic debt, (b) money markets, and (c) Automated Market Maker technology. (2) Pickle - Yearn acquired the development team of yield aggregator Pickle (pickle.finance) and will incorporate all of Pickle’s strategies into its soon to be launched v2 vaults. (3) Cover – Yearn partnered with Cover (coverprotocol.com) to provide the first ever perpetual on-chain insurance product to protect against any adverse events (e.g., hacks) which will be incorporated into all of Yearn’s v2 vaults. (4) Akropolis – Yearn partnered with a leading DeFi yield optimization and uncollateralized lending protocol, Akropolis (acropolis.io) which should expand its network into institutional investors.

With the upcoming launch of its v2 vaults, which will initially implement over a dozen yield optimization and lending strategies and the recently passed YFI governance protocol shifting its fee model to a more traditional 2/20 structure, Yearn hopes to become the first premier decentralized multi-strategy investment firm catered to institutional and retail investors alike who are seeking yield from passive investments on-chain.

LEGAL TOKENS

DeFi has exploded onto the scene and new products seemingly launch on a daily basis. But there are many questions on exactly what regulatory issues decentralized yield optimization protocols may be subject to, and it may be a case where technology may have outraced regulators. DeFi platforms deal with financial assets and those are subject to both federal and state laws, regardless of the tech rails behind them. We expect that DeFi tokens and platforms will receive scrutiny from federal and state regulators not just on the security side, but also from a number of other issues related to commodities, money transmitter and anti-money laundering regulations, broker-dealer or investment adviser licensing requirements, and so on. Are decentralized platforms required to be a registered investment advisor under the Investment Advisors Act? Are each of the vaults offered by a DeFi platform considered their own investment fund, and do any of them need to be registered under the Investment Company Act? Does the implementation of Yearn’s StableCredit require it to be a broker-dealer? How do you determine control and governance of a decentralized platform when, for the most part, the protocol is ultimately governed by platform token holders and not necessarily by any of the developers? Even though regulators are playing catch-up with the technology, if there are any charges of investors being defrauded or losing their investment, we would expect to see a ramp-up of enforcement activities.

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Meir Grossman | Partner

A crypto enthusiast, Meir Grossman has been actively following the decentralized finance space since its early days. As a partner in Seward & Kissel’s Business Transactions Group, Meir works with sponsors and managers of private investment funds on a wide variety of formation, structuring, and transactional matters, including structuring and negotiating seed and other forms of strategic investments. He also:

  • Assists fund managers in creating crypto funds;

  • Advises investors who are investing in crypto-backed venture capital funds and projects; and

  • Works with venture capital investors interested in blockchain and crypto-focused initiatives and companies.