Yearn Finance is a Decentralized Finance (DeFi) platform that is designed to generate yield on smart contract platforms like Ethereum. One of Yearn’s most popular product is the investment vault. In order to invest in the vault, users need to have the vault’s required token.
Since the introduction of Yearn’s new Zap contract, users can enter vaults from a variety of tokens and exit vaults into a certain number of tokens. This article will analyse what tokens people use to enter the vault (zap-in) and what tokens people convert to when they exit the vault (zap-out). It further looks at whether the zap-in or zap-out amount in USD for each token has a correlation with the token’s market price. Credits to Flipside Crypto for providing the data needed for this analysis. All interactive charts used in the article can be found here.
Background
Yearn’s vault is a passive-investing strategy that helps users optimise gas costs, automate the yield generation and rebalancing process, and automatically shift capital as opportunities arise. In order to enter a specific vault, users need to have the required token for the vault.
For example, if you want to deposit into a liquidity pool from Curve — the crvSTETH vault — instead of the normal ETH vault, and accept the additional risk that comes with the Curve pool and an ETH derivative (stETH) in return for higher yield, but you only have ETH in your wallet, then you need to convert ETH to a crvSTETH token before it can be accepted in the vault . This is known as zap in. To exit the vault (or zap out), you can convert the crvSTETH into one of the 6 tokens — ETH, WETH, DAI, USDT, USDC, WBTC.
There are two versions of the vault — yveCRV Vault and yvBOOST Vault. The yvBOOST Vault is the new version where rewards are automatically claimed (as opposed to manually claimed by user) and reinvested into yveCRV to compound rewards. This article looks at the zap-in and zap-out transactions of the yvBOOST vault.
Zapping in
To zap in to the required vault token, you simply select the available tokens in your wallet to convert to the vault token (i.e. crvSTETH). More details are explained here.
So what tokens do people use to zap into the vault? When looking at the total number of tokens and the amount in USD, ETH is the most common token people use, followed by USDC and DAI. The zap-in amount in USD from December 2020 to September 2021 for ETH is 409 million; whereas for USDC and DAI it is 243 million and 62 million respectively.
Looking across time horizon, the zap-in tokens seem to be consistently dominated by ETH, USDC, USDT, DAI, WBTC and LINK. ETH has always occupied the largest portion in terms of count of zap-ins. June 2021 has seen the highest number for both zap-in number and the zap-in amount. Interestingly while ETH has the highest number of zap-in in June, USDC has the highest dollar amount of zap-in.
Is there any correlation between the zap-in amount and the token price? ETH and WBTC show completely different stories. ETH’s zap-in amount increases with the market price, with a strong correlation of 58%; whereas WBTC’s zap-in amount decreases with price, with a -36% correlation. Maybe one of the possible reasons for the opposite reaction from ETH and WBTC is because ETH is still at a more affordable price than bitcoin. When bitcoin’s price goes up to $60k, the amount of people who can afford to zap-in using bitcoin is much less than when bitcoin is at $30k.
The stablecoins zap-in amount don’t seem to show any obvious one direction correlation with their market price. The month with the highest zap-in amount for USDT is May; whereas for USDC is June. DAI’s weekly amount is the smallest among the three stablecoins and also is the most volatile.
Zapping out
To withdraw from the vault, you can select one of the tokens available from the drop-down list. Although you can zap in from any tokens tradable on Uniswap (or Sushiswap), you can only zap out to the listed tokens. More details are explained here.
When looking at the total number of tokens and the amount in USD that have been zapped out, ETH is the most popular option, followed by USDC and DAI. The zap-out amount in USD from December 2020 to September 2021 for ETH is 236 million; whereas for USDC and DAI it is 113 million and 34 million respectively.
When looking across historic count of zapped out tokens, at the beginning of the year there were still quite some diversity in what people zap out to. By June 2021, the average weekly number of zap-out tokens have more than doubled the previous periods and the zap out options are dominated by ETH, USDC, USDT, DAI and WBTC. ETH has always been the most popular zap-out token. In the week of September 20th 2021, ETH’s zap-out dollar amount exceeded the other 4 significantly, reaching 50 million in one week.
What is causing people to zap out and why? To answer this question, the market price of the token is compared against the zap-out amount to see if people zap out due to price fluctuations.
For ETH, the correlation between zap-out amount and the price is 45%. It seems the zap-out amount increases with ETH’s price, meaning people zap-out more into ETH the higher the ETH price is. But in the recent period where ETH price has dropped from $3660 to $3000, the zap-out amount also increased dramatically to 51 million USD. This might be due to the fact that the vault token itself is also not doing very well, so people would rather hold a more liquid token like ETH when the overall market is in distress.
Interestingly for the dollar-pegged tokens such as USDT, USDC and DAI, the correlation between the token price and the zap-out amount is not always one direction. But the zap-out amount always increases with sudden movements in the price. Whenever the stablecoin price deviates away from its normal pegged price range, the zap-out amount increases.
For WBTC, the correlation between the token price and the zap-out amount is -20%. In the recent bitcoin price drop in July, the zap-out amount is also the lowest.
Conclusion
Based on the above zap-in and zap-out analysis, the following conclusions can be made:
- The most popular tokens people use to zap-in and zap-out are the same — ETH, followed by USDC and DAI.
- The zap-in amount is double the amount of zap-out (ETH 409 vs. 236 million; USDC 243 vs. 113 million; and DAI 62 vs. 34 million).
- People zap-in from ETH more when ETH price increases; but zap-in less from WBTC when WBTC price increases. This also holds for zap-out. So the higher the ETH price, the more participation (both zap-in/out); but the higher the WBTC price, the less participation from users.
- There is no obvious correlation between zap-in/out amount and the market price for stablecoins (USDC, USDT, DAI).
