Yearn.Finance Vaults

Yearn Vaults, in essence, are pools of funds with an associated strategy for maximizing returns on the asset in the vault. Vault strategies are more active than just lending out coins like in the standard Yearn protocol. In fact, most vault strategies can do multiple things to maximize returns. This can involve supplying collateral and borrowing other assets such as stable coins, providing liquidity, and collecting trading fees or farming other tokens, and selling them for profit. Each vault follows a strategy that is voted in by the Yearn community.

Strategies of the Yearn.finance vaults are voted on by the YFI token holders and community.

Depositing funds in the yearn.finance vaults exposes your capital to smart contract risk of Yearn as well as all smart contracts that are part of each individual strategy. Before supplying capital you want to make sure, which strategy is being applied in the vault of your choice and investigate the risks involved. Furthermore it could be possible, that stablecoins are losing their peg to the dollar.

Even there are a lot of security mechanisms put in place to prevent it, the ETH Vaults are additionally susceptible to liquidation if the collateralization ratio in the MakerDAO vault falls below 150%. This may happen in times of extremely fast and sharp price drops.