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What the YFI and SushiSwap ‘Merger’ Means for DeFi
Yearn Finance is joining forces with SushiSwap to enhance both protocols. The latest DeFi collaboration could benefit users looking for innovative projects and better security.
Yearn Finance and SushiSwap have announced plans to closely collaborate, share resources, and build better services for both protocols.
Yearn has announced a flurry of similar collaborations in recent days, pooling resources from different corners of the DeFi ecosystem.
Not quite mergers or acquisitions, the collaborative activity is showing the outline for the DeFi industry’s future.
Yearn Finance, the yield optimization protocol that has become one of the most recognizable projects in the DeFi ecosystem, is joining forces with decentralized exchange SushiSwap. It’s the latest in a streak of high-profile collaborations for Yearn.
Andre Cronje, the founder of Yearn Finance, announced today a new relationship with SushiSwap that aim to enhance development and integration of both DeFi offerings. Since ownership for both protocols is decentralized among supporters, the enhanced collaboration between the two protocols isn’t exactly a merger or an acquisition, but is set to have a positive impact on the mostly open-source DeFi industry.
“I don’t have an answer on if these are mergers, acquisitions, partnerships, or collaborations,” Cronje said in a Medium post from November 29 that touched on Yearn’s collaborative strategy. “The simple answer is, a bit of each, the teams merge, the protocols leverage off of each other, vision is aligned and shared by all team members. This is something new that I don’t think fits into the boxes we have previously used.”
DeFi, short for decentralized finance, is a group of protocols that offer financial services like loans and interest on deposits without the need for a bank or other money changing institution. Instead, DeFi relies on smart contracts, typically on the Ethereum blockchain.
The Yearn-SushiSwap collaboration is expected to speed up and improve the development of both protocols, as teams work together and integrate different parts of one another’s smart contract code design. That should help make Yearn yield optimization strategies more profitable, while improving the capabilities and security of SushiSwap’s automated market maker (AMM) decentralized exchange.
SushiSwap was originally launched as a copy of popular decentralized exchange Uniswap, offering a few differentiating features like a protocol token with voting rights (at the time, Uniswap’s UNI token was not yet released). The DEX suffered an early crisis of confidence when anonymous founder 0xMaki appeared ready to take off with funds set aside for the platform’s development. FTX exchange founder Sam Bankman-Fried took control of the protocol and helped transition it to proper decentralized governance, and 0xMaki ultimately returned the money.
Yearn, the preeminent DeFi product, has collaborated with other more junior projects before, sharing resources with yield-optimizing Pickle Finance, decentralized exchange Deriswap, and leverage lending provider Cream.
Such collaborations push the envelope of one of DeFi’s most powerful aspects: composability. To reach thousands of users without a central authority, the underlying blockchain-based application code should be highly interchangeable. This has earned DeFi’s various components the nickname “money legos” for their ability to link together and build entirely new functionality.
For end users, it should mean more innovative financial products and services, along with greater security and fewer exploits as would-be competitors share and apply fixes that quickly spread throughout the industry.
The flurry of Yearn collaborations offers a vision of a future where deep cooperation between open-source projects is the standard, not the exception. First, however, the planned collaboration between SushiSwap and Yearn must be approved by token holders from both projects.
This is decentralized finance, after all.