Yearn Finance said in its second-ever quarterly report, and first using the EBITDA accounting metric, that earnings in Q1 2021 were up 32% of all 2020 earnings, a period which spanned the five months since the protocol’s inception last year.
The report offers a glimpse into the business model of a DeFi project that’s not structured the traditional corporate way, but rather is an open protocol being built by a decentralized organization of contributors.
The protocol reported $4.8M for Q1 based on the EBITDA metric which is often used as a proxy for cash flow, compared with $3.7M in the last five months of 2020. $3.1M, or 66% of the EBITDA came in March, when several v2 yVaults were deployed.
Yearn earns revenue via its vaults by charging depositors a 20% performance fee of which 19.5% is allocated to the project’s Treasury and the other 0.5% going to the vault’s strategy creator. Yearn also charges a 2% management fee that accrues to the Treasury on a per block basis.
Yearn’s new initiative to use Treasury funds to yield farm also contributed to its revenue. Traditionally though, revenue which is invested would count as non-operating income, not revenue.
Albeit a non-traditional way of accounting, Yearn says its Treasury yield farming made up 9% of revenue in Q1. The report says the team anticipates this percentage to increase. In March, when the majority of yield farming occurred, the portion increased to 12%.
The majority of operating expenses came from salaries and grants, with the former paying out $242K to salaried Yearn contributors, and $150K in grants going to “value-add” work like designer and front-end development.
The largest single expense was the one-time $11M paid out to yvDAI vault depositors in response to a hack in February.
Passing the Torch to V2
Yearn’s y3CRV vault posted the highest revenue for the first two months of Q1, hitting almost $493K for February before dropping down to $286K as five new V2 vaults, which are able to carry out multiple strategies with deposited assets, gained ground.
The yvDAI V2 vault generated the most revenue among vaults in March, hitting $355K. According to Yearn’s report, this was due to the newly launched Alchemix protocol which deposits users DAI into Yearn’s yvDAI V2 vault in order to generate the yield which repays users’ loans.
Overall, revenue was spread more evenly across yVaults in March, with eleven of them contributing over $100K in revenue as opposed to only three in February.
TVL Breaks Through
Yearn also reported skyrocketing TVL, which had surpassed $2B by the end of Q1 and now stands at over $3B according to the protocol’s self-reported statistics. Lead developer Bantg has said that the protocol’s TVL has been underreported in the past, which led Yearn to develop their own chart for monitoring the metric.
The report emphasizes that these numbers were reached “without any token subsidies or other incentives typically offered by competing protocols in DeFi.”
Yearn’s report underlines its new governance system which shifts decision-making powers from the multisig to yTeams, a group of “organically formed autonomous contributor teams” like yDev, yBudget, and yPeople.
The multisig will still be the entity which executes proposed changes to the protocol and will retain veto power. Still, the more modular form of governance may allow the protocol to adapt quickly despite its increasing size.
“Backscratcher” Vault and Other Competitive Advantages
Before closing the report with an overview of its ecosystem, Yearn cites three competitive advantages: a “Backscratcher” Vault, its developer team, and its community.
The “Backscratcher” Vault, the yveCRV, leverages its relationship with the Curve protocol in order to generate additional value for users. Additionally the project’s developer Andre Cronje pioneered the yield bouncing concept, and has developed numerous other financial primitives.
Finally, Yearn’s community is “fully decentralized,” which, continuing in the tradition of the project’s YFI token fair launch, means that no one individual owns or is able to control the project, despite its accounting looking similar to that of traditional business.