On Building the Upstart DeFi Aggregator iearn.finance with Andre Cronje [Interview]

Disclaimer: This article does not offer financial advice, do your own research when using one of the presented products. Use these projects and services at your own risk.

Googling for “decentralised finance adoption” provides you with tons of articles talking about the shift towards decentralised finance (DeFi). An article published by Cointelegraph discusses how the DeFi movement grew from a niche market to mainstream finance.

The article presents an interesting statistic about the total value locked in DeFi markets. Over the course of one year, the total value of locked Ether rose from $317 million to over $1 billion. Therefore, we can say that 2020 will see an even bigger shift towards DeFi solutions.

The majority of the DeFi solutions provide lending products. Many projects offer multi-collateralised and uncollateralised lending products. However, there is still some feeling of uncertainty about these products as the crypto price volatility is still a tricky challenge to tackle in combination with the scalability of these applications.

Nevertheless, we’ve seen the rise of many successful DeFi projects, including:

• Compound: Allows to earn a yield on non-yielding digital assets
• dYdX: Focus on borrowing and lending for margin trading
• YouHodler: Lending provider which offers Multi HODL
• Synthetix: Decentralised synthetic assets
• MakerDAO: CDP for stable coin stabilisation
• Dharma: Lending without a centralised bank

So, how has DeFi sparked the search for alternative financial products?

Search for Stable Financial Products

There is a search for new financial products that offer stable returns. Currently, traditional savings accounts are even facing negative interest. This means you have to pay the bank to store your money. Because of this, a lot of young people are looking for new, interesting alternatives to grow their capital and counteract inflation.

Therefore, the DeFi industry boomed at the right moment, providing the ability for users to borrow money and earn stable returns. This explains the fast adoption of DeFi products during these current times of financial uncertainty.

Akiva Lai, chief product officer at auditing platform Maxonrow, highlights the significant growth of the DeFi space and why the financial uncertainty has boosted adoption:

“It’s pretty astounding, to be honest. $1 billion in locked DeFi value may seem minuscule compared to legacy finance, but we need to examine it for what it could be — not what it currently is. Paired with the ballooning growth of exchange products, from derivatives to staking services, and it’s only natural that more users will tap DeFi products in the never-ending search for yield amid an uncertain economic backdrop of negative interest rates and slow growth.”

From this whole economy of lending providers, Andre Cronje has developed the protocol iearn.finance. The protocol helps you with obtaining the highest yield. Therefore, we can say that iearn.finance is a lending aggregator that helps you with finding the best deals without having to care about the underlying details. 

Let’s learn how Andre Cronje has designed iearn.finance and how you can use it?

This article is dedicated to iearn.finance’s product and explains how the product works. To clarify things, iearn.finance does not make any profits. It’s a free, open-source protocol. The team behind iearn.finance does not intend to monetize it and they have revoked admin keys so the product can be 100% non-custodial.

Q1: Explain what a lending aggregator is?

A lending aggregator simply aggregates the lending services other projects offer into one easy-to-use tool. iearn offers a protocol that looks for lending platforms with the highest yield. In addition to finding the highest yield, the protocol rebalances every week to find the highest yield.

Q2: Why consider using iearn.finance for maximising profits?

Iearn.finance allows you to deposit DAI, USDC, USDT, and TUSD. This means only stable coins can be used for lending money. Therefore, the platform reduces risk as there’s barely volatility associated with those stable coins.

Next, iearn.finance aggregates the following lending platforms to maximise your profits:

• Compound
• Fulcrum (disabled)
• dYdX
• Aave
• DDEX

Currently, the annual percentage yield (APY) is on average 20%. These statistics can be found on iearn’s website. For those unaware what the APY means, here’s a short explanation:

In contrast to APR, the APY of a loan includes the amount earned from compounding. A good example explaining the difference between APR and APY can be found at ValuePenguin.com.

In short, iearn.finance helps you to earn a stable interest for your inactive cryptocurrencies.

Q3: What are the risks of using iearn.finance?

When reviewing a platform, it’s fair to also take a look at the risks. Let’s review both internal and external risks.

External risks

We can say the risks of losing money are minimised by using stable coins as you don’t have to deal with crypto volatility. However, a stablecoin project can stop its operations or be hacked although the chance this happens is very low. Also, there is a small risk something goes wrong with the lending providers.

In short, you have to trust the lending providers that they implement the right security measures and manage the product accordingly.

Internal risks

Andre Cronje, creator of iearn.finance, explains that the internal risks for iearn include:

• Smart contract failure.
• Failure of any software components.

However, the team has revoked their admin credentials, so there is no risk associated with custodial services. Iean.finance is a non-custodial product and the project lives as an open-source protocol that can be reviewed by anyone.

As Andre Cronje loves to say: Low risk, high yield, stable rewards. Providing youth with new, low-risk investment options.

Q4: What about the technicals?

Here are some cool, technical facts.

Cool #1: On-chain investment decisions

The cool part of iearn.finance is that a smart contract takes care of making investment decisions. Moreover, it means that it makes these investment decisions on-chain. 

This means the contract has to find creative solutions to find out about the interest rate a particular project offers. To give an example, the Compound project provides a smart contract that sets the interest rate. From this constant, the APR can be calculated. You can find an example of how iearn did this in the following Medium article.

Cool #2: Automatic rebalancing

From another article published by iearn, we can learn that the smart contract automatically rebalances every time someone interacts with the contract.

Next, it finds the highest rate and moves the underlying funds there. The full details of this mechanism can again be found in the article.

Cool #3: What if the liquidity pool is too large?

What happens when your liquidity pool is so large, that when you move to take advantage of a lending providers’ yield, you wipe out the yield?

It turned out that a simple call to calculate the APR is not sufficient. The team behind iearn.finance has built an oracle that helps to calculate the APR and takes into account the pool size to optimize the yield. This means the oracle calculates how the pool size affects the APR and where to best put the maximum amount of funds to gain the highest aggregate yield. (source)

If you want to read more about this scenario, then Andre has published a much more comprehensive article in which he expands on this topic.

Want to learn more about iearn?

Visit iearn.finance platform or visit their Telegram channel in case you have further questions. Remember, the product is still in beta, only use it at your own risk.

Happy lending!