Yield Aggregators

What is a Yield Aggregator

A yield aggregator is a protocol that automates and optimizes yield strategies across multiple DeFi protocols. It handles the complex tasks that users would otherwise have to do manually.

Core functions:

• Auto-compounding: Automates harvesting rewards and reinvesting
• Strategy optimization: Automatically finds the highest-yielding destinations
• Gas fee savings: Bundles transactions from multiple users
• Convenience: One-click deposit/withdraw

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Why Use a Yield Aggregator

Problems with Manual Farming

1. Compounding Gas Fees:

• Harvest rewards → Swap → Redeposit
• Multiple transactions required each time
• $20~100+ gas fees on Ethereum

2. Optimal Frequency Calculation:

• Too frequent: Gas fees exceed profits
• Too rare: Reduced compounding effect
• Complex optimal frequency calculation

3. Time Investment:

• Regular work required
• Searching for new opportunities
• 24/7 monitoring impossible

How Yield Aggregators Solve This

Gas Fee Sharing:

• Bundles funds from hundreds to thousands of users
• Dramatically reduces gas fees per person

Automation:

• Auto-compound at optimal frequency
• Automatic strategy execution
• Minimal human intervention

Expertise:

• Experts design strategies
• Continuous optimization
• Captures new opportunities

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Major Yield Aggregators

Yearn Finance

Overview:

• Largest yield aggregator on Ethereum
• Founded by Andre Cronje in 2020
• TVL: $300M+ (2024)

Features:

• Complex multi-step strategies
• Community strategist system
• Rigorous security review

Vault Types:

Fees:

• Performance fee: 20% (from profits)
• Management fee: 2% (annual)

Beefy Finance

Overview:

• Multi-chain yield optimizer
• Supports 20+ chains
• TVL: $200M+ (2024)

Features:

• Most chain support
• Simple strategies (mainly auto-compound)
• Low fees

Supported Chains:

• Ethereum, Arbitrum, Optimism
• BNB Chain, Polygon
• Avalanche, Fantom
• Solana (limited)
• Many more

Fees:

• Performance fee: 4.5% (from profits)
• Withdrawal fee: None (mostly)

Convex Finance

Overview:

• Curve-specialized optimizer
• CRV reward boost
• TVL: $3B+ (2024)

Features:

• Curve LP only
• veCRV boost sharing
• CVX additional rewards

How it works:

1. Deposit Curve LP tokens
2. Convex applies veCRV boost
3. Boosted CRV + CVX rewards

Fees:

• 17% of CRV rewards

Aura Finance

Overview:

• Balancer-specialized (Convex for Balancer)
• veBAL boost sharing

Features:

• Balancer LP optimization
• AURA additional rewards

Comparison Table

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Understanding Vaults

What is a Vault

A vault is a smart contract that executes a specific strategy. When users deposit assets, the vault automatically executes the strategy.

How Vaults Work

Example: Yearn yvUSDC

1. User deposits USDC
2. Vault issues yvUSDC tokens (deposit proof)
3. Strategy allocates USDC to multiple protocols
   • 50% to Compound
   • 30% to Aave
   • 20% to Curve
4. Periodically harvests rewards and reinvests
5. yvUSDC value increases (reflects compounding)
6. On withdrawal, yvUSDC is burned → USDC returned

Rebasing vs Value Accrual

Rebasing:

• Token quantity increases
• Example: 1 yvETH → 1.01 yvETH

Value Accrual (more common):

• Token quantity fixed, value increases
• Example: 1 yvUSDC = 1.05 USDC (over time)

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Strategy Types

1. Simple Auto-Compound

The most basic strategy.

Process:

1. Deposit LP tokens
2. Harvest rewards
3. Swap rewards for LP tokens
4. Add more LP
5. Repeat

Example: Most Beefy vaults

2. Lending Optimization

Tracks the highest interest rate among multiple lending protocols.

Process:

1. Deposit USDC
2. Compare rates on Aave, Compound, Morpho, etc.
3. Allocate to the highest
4. Auto-reallocate when rates change

Example: Yearn yvUSDC

3. Leverage Strategies

Yield amplification using borrowing.

Process:

1. Deposit ETH
2. Borrow stablecoin against ETH collateral
3. Buy more ETH with stablecoin
4. Loop
5. Staking rewards - borrowing interest = net yield

Risk: Liquidation risk

4. Delta Neutral Strategies

Strategies that hedge price movement risk.

Process:

1. Hold spot ETH
2. Simultaneously short ETH
3. Pursue funding rate or interest income
4. Price movements offset

Risk: Imperfect hedge, funding rate reversal

5. Curve Boost Strategies

Strategies that share veCRV boost.

Process:

1. Deposit Curve LP
2. Convex/Yearn applies veCRV boost
3. Earn boosted CRV rewards
4. Reinvest CRV into LP

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Fee Structure

Fee Types

Performance Fee:

• Percentage of profits
• Yearn: 20%
• Beefy: 4.5%

Management Fee:

• Annual percentage of deposits
• Yearn: 2%
• Many aggregators: None

Deposit/Withdrawal Fees:

• Usually none
• Some: 0.1% etc. small amounts

Fees vs DIY Costs

Scenario: $10,000 deposit, 20% APY annually

In this case, DIY is better, but:

• Smaller deposits favor aggregators
• Compounding optimization effect not reflected
• Time cost not reflected

Break-even Point:

• Larger deposits: DIY favorable
• Smaller deposits: Aggregator favorable

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Risks

1. Smart Contract Risk

Bugs or hacks in the aggregator itself.

Examples:

• Yearn: 2021 $11M hack
• Harvest Finance: 2020 $34M hack

Mitigation:

• Choose audited protocols
• Check TVL and track record
• Diversify deposits

2. Strategy Risk

Failure of the underlying strategy.

Examples:

• Leverage strategy liquidation
• Delta neutral hedge failure
• Hack of protocols being used

Mitigation:

• Enter after understanding the strategy
• Choose conservative strategies
• Be cautious with complex strategies

3. Underlying Protocol Risk

Risks from the protocols the aggregator uses.

Examples:

• Problem with Aave that Yearn uses
• Curve pool hack

Mitigation:

• Choose strategies with multi-protocol diversification
• Review underlying protocols too

4. Token Price Risk

Price decline of reward tokens.

Examples:

• CRV price drop → Convex yield decrease
• Aggregator token (YFI, etc.) price fluctuation

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Aggregator Selection Guide

By Chain

By Strategy

Checklist

• Check TVL and track record
• Verify audit history
• Understand fee structure
• Understand strategy content
• Review underlying protocols
• Confirm withdrawal ease

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How to Use

Yearn Example

1. Connect wallet: Go to yearn.finance, connect wallet
2. Select vault: Choose desired vault (e.g., yvUSDC)
3. Deposit: Enter amount → Approve → Deposit
4. Confirm: Verify yvUSDC token receipt
5. Monitor: Check accumulated yields
6. Withdraw: Withdraw button → Receive principal + yields

Beefy Example

1. Select chain: Switch to desired chain
2. Browse vaults: Check APY, TVL, strategy
3. Deposit: Deposit LP tokens or single tokens
4. Receive Moo token: Deposit proof token
5. Auto-compound: No additional action needed
6. Withdraw: Withdraw anytime

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Advanced Strategies

1. Aggregator Comparison

Even the same underlying strategy can have different net yields by aggregator.

Comparison factors:

• Compounding frequency
• Fee structure
• Boost level

2. Manual + Auto Hybrid

• Large funds: DIY for gas fee efficiency
• Small funds: Use aggregator

3. Zap Feature Utilization

Many aggregators provide "zap" features:

• Enter LP vaults with single tokens
• Automatically compose pairs
• Save gas fees

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Summary

Yield aggregators automate DeFi yield strategies, providing auto-compounding, strategy optimization, and gas fee savings. Yearn excels at complex multi-step strategies, Beefy has broad multi-chain support, and Convex specializes in Curve LP. Depositing in vaults auto-executes strategies, with yields reflected in token value appreciation. Performance fees (4.5~20%) exist but can be offset by gas savings and convenience. Understand smart contract, strategy, and underlying protocol risks and choose verified aggregators.

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