A very common question that seems to pop up for Yearn Finance users is: What’s the difference between Yearn “Earn” and Yearn “Vaults”?
At first glance, each feature shares some very similar traits. Both of them accept a variety of tokens as deposits. Both features also automatically deploy the deposited funds to the most profitable use available from their respective set of available options.
So where is the main point of difference?
The answer to this lies in those sets of available options. In a nutshell, funds deposited in “Earn” are deployed to a simple and low-risk strategy, while funds deposited in “Vaults” are deployed to more complex and high-risk strategies.
Let’s take a look at these in a little more detail:
Yearn Earn allows users to deposit a range of stablecoin tokens (and WBTC), which are pooled and automatically allocated for lending via one of a handful platforms. At the time of writing, this includes Compound, dYdX or Aave. Two additional options, DDEX and Fulcrum, were previously available but are currently disabled.
The funds lent via these protocols earn a return, which is paid out to Earn depositors. The most profitable lending platform is chosen at all times, in order to maximize returns.
Similar to Yearn Earn, Yearn Vaults allow users to deposit a range of tokens which are pooled and automatically allocated to optimize returns.
However, rather than simply allocating the tokens to a limited range of lending protocols, Yearn Vaults deploy the funds to more complex (and somewhat riskier) strategies.
This can involve extra steps, such as using the funds to borrow collateral or allocating the funds to a less-established DeFi protocol.
Another key difference is that Yearn Vaults support tokens other than just stablecoins. There are Vaults available for other popular assets such as Chainlink (LINK), liquidity provider (“LP”) tokens, and even Ether (ETH) itself.
As you may have noticed, there are extra variables and steps in Vault strategies, which are not present in the simpler Yearn Earn. Despite the often-higher returns, factors such as asset volatility and extra smart-contract risks should be considered before using Yearn Vaults.
Another difference is that new Vault strategies can be added by the community, via the Yearn governance process. Creators of successfully-implemented strategies are entitled to a small percentage of returns generated by the Vault.
Earn vs Vault: Key comparisons
To summarize the above, here’s a breakdown of the key differences between Yearn Earn and Years Vaults:
- Yearn Earn only supports deposits for stablecoins and wBTC. Vaults, on the other hand, support deposits for a wider range of assets including ETH, LINK and LP tokens.
- Earn deploys funds to just a handful of lending protocols. Vaults deploys funds to a larger selection of protocols, sometimes with multiple steps.
- Earn strategies are more or less set in stone, whereas new Vault strategies can be submitted by users and implemented via a voting process.
- Earn is generally lower-risk and lower-return, while Vaults tend to be higher-risk and higher-return, due to the involvement of more farming options and variables.
Should I use Yearn Earn or Yearn Vaults?
When deciding between Yearn Earn and Yearn Vaults, users should ensure that they completely understand the strategies and risks involved in the option they choose.
For the vast majority of users, Yearn Earn is the best option. The feature is both safer and easier to understand, with a small amount of risk involved.
Yearn Vaults, on the other hand, should only be used by users who can understand the more complex strategies and protocols involved, as well as the associated risks. Many Yearn Vault smart contracts are still unaudited, with a higher risk of containing bugs that may result in an exploit and loss of funds.
Yearn Vaults users should only ever deposit what they can afford to lose.