Precog Finance vs Yearn Finance
Which DeFi Investment Protocol is the Best for You?
Crypto receives more than its fair share of criticism, but one thing that cannot be overlooked is the reduction of barriers that make investments a hurdle for the everyday individual. The free, permissionless, and trustless protocols that have been built upon blockchain networks throughout the years have made it easy for virtually anyone from around the world to access a growing market of digital assets.
It wouldn’t be far-fetched to say that DeFi isn’t just a market, but also a global movement led by both individuals and institutions alike; an empowering concept that gives users direct access to and verifiable ownership of their assets, that can be used in a myriad of different ways across the landscape of decentralized finance.
If therefore, anyone can directly utilize their digital assets with a few clicks, and if we have the technology to build decentralized investment tools and platforms, then it follows that we can build protocols that automate certain processes to effectively generate recurring revenue for investors — and indeed there are a vast array of such applications across the DeFi world.
A simple example that can illustrate this would be liquidity pools. Most decentralized exchanges — specifically, automatic market makers (AMMs) — allow users to deposit their assets in liquidity pools to in turn allow other users to swap tokens seamlessly. Liquidity providers, as a result, collect trading fees from these swaps, which are distributed among them proportional to the amount deposited.
It is often said that liquidity pools are the starting point for most DeFi users with an appetite to explore smart contract-powered automated investing avenues; as there is a host of different, and often more complex means of putting one’s crypto to work. The fascinating thing about this area of DeFi is that the more models we find to generate recurring revenue, the more protocols pop up that leverage those means in combination with other strategies, leading to some very interesting and sophisticated dApps.
What is Yearn Finance?
There is much to be said about Yearn Finance; despite launching relatively recently, it has become one of the go-to dApps for those interested in putting their assets to work with DeFi. It offers various DeFi products that provide functionalities such as yield generation, lending aggregation, and more.
It is perhaps best known for its Vaults, a collection of investment strategies designed to generate the highest returns from other DeFi projects. Here, you’ll find a long list of strategies you could invest in, along with the total value of assets deposited within them, and the APY for each strategy.
Those with a higher appetite for risk can check out Yearn’s Labs; this is where the new and emerging strategies are listed, and as the platform discloses — is not to be taken so lightly. Similar to the vaults, Labs also displays the same metrics, the only difference being the amount of risk involved.
For a more comprehensive understanding of Yearn Finance, we highly encourage going through their documentation that lays out all the details for all those interested.
Yearn or Precog? A Comparison
So, you’ve got some assets you’d like to invest with DeFi, and are looking to let smart contracts do the heavy lifting for you — then it’s safe to say you’ve come to the right place! It should be noted that although we will exert a conscious effort to remain fair when discussing both projects, some level of bias should be expected. We are, after all, very passionate about what we are building.
Additionally, for the purposes of discussing recurring revenue, the objects of comparison will be Precog Finance’s Sentient, and Yearn Finance’s Vaults. In the future, we will also compare Cerebral (our decentralized futures and options marketplace) with some of Yearn’s other products such as Ytrade.finance.
With that out of the way, let’s see which of these two protocols is best suited for you.
Let’s start off by reviewing the nature of both products.
Sentient — is an automated trading algorithm powered by AI. It can learn and perform various trading strategies including arbitrage trading, and improves with each trade thanks to its machine learning capabilities. It can trade a long list of assets across dozens of centralized and decentralized exchanges, and only executes profitable trades.
Click here for a more detailed explanation of Sentient.
Vaults — is where a host of trading strategies are utilized to aggregate yield for the tokens deposited by users. Yield Vaults are referred to as yVaults, and they need to undergo a vetting process to be listed in the Vaults. There are no deposit or withdrawal fees when interacting with yVaults, and the yield is automatically compounded.
Click here for a more detailed explanation of Vaults and strategies.
While the strategies found in the Vaults have to be thoroughly vetted, Sentient may take the edge regarding safety. Take for instance a market crash scenario; the prices of the assets involved in yVaults may crash alongside the market, whereas Sentient would be indifferent due to how it operates.
Some of the strategies in the Vaults may also be subject to impermanent loss. This takes place when the price of a token changes disproportionally to the price of the other token in a liquidity pool. Since Sentient doesn’t use any assets to provide liquidity, it is at no such risks during operation.
The Vaults, however, display the APY values to users; while Sentient’s performance can be measured to give an indication for future performance, due to the nature of the protocol, no precise figure can be given. This means that users on Yearn might get a better understanding of the prospective revenue due to the information displayed, whereas with Sentient, they will have to read performance reports to obtain a similar idea.
That being said, the APY of many of the strategies found on Yearn fluctuate on a daily basis, whereas Sentient’s performance is more consistent. In addition, the monthly performance metrics gathered from Sentient’s trades so far would also amount to higher rates of return per annum than most of Yearn’s strategies.
In terms of options, Yearn gives users more control over their assets, as it gives them the option to choose the strategies they want to utilize. Sentient, while also supporting various assets and strategies, is automated, as it uses market data and AI to determine how to act.
Both protocols have auto-compounding features, however unlike the Vaults, Sentient currently has no fees on profits. Yearn may charge up to 22% in fees from earned yields, a significant portion of which goes to those developing the strategies. Since all of Sentient’s strategies are chosen by the Precog Finance team, any fees implemented in the future would likely be minimal as a result.
If you’ve got the appetite for some risk, and want to explore DeFi with more control over the decision-making process, then perhaps Yield might appeal to you more. If you’d like a safer route that utilizes CEXes and DEXes alike, with a more beginner-friendly dApp that doesn’t require your attention after depositing your assets, then Sentient is the way to go.
But, there’s nothing stopping you from using both!
Have any questions, concerns, or comments? Find our community channels and more with the links below!