DCV - December 20, 2021
Hi! This post explains a little bit about what Beefy Finance is, how it works, and how I'm using it to earn on my crypto assets. So first of all, Beefy Finance is a decentralized finance or DeFi platform that allows you to deposit crypto assets into what is called a “vault”, and then in turn, they use that deposit to earn you interest.
It's very similar to things like PancakeSwap or UniSwap or SushiSwap. The difference is that “Beefy is a yield farming optimizer that removes the daily actions and regular fees associated with the manual optimization”.
So it doesn't just allow people to deposit their money into pools, but it also optimizes the yield based on what are called “strategies” that they implement per each vault. Each vault is associated with a crypto asset, for example, BNB or Cake, or even a liquidity pair like Cake and BNB. And underneath each vault is a farming strategy that the vault designer has coded in. And each strategy optimizes different investment strategies in the background while you don't have to do anything.
What this does is that it optimizes how the transactions occur so there's no extraneous fees as well as reinvests whatever returns that you have automatically and at a frequency at which it thinks it's optimized.
So in short, Beefy Finance is a yield farming platform that is very easy to use and gives good return on investment on your crypto. I'm going to show some infographics just to explain some concepts a little bit further. I think they're a good medium to do that.
Here are some infographics that the Beefy Finance documentation shows, and this specific one is for the yield farming steps that Beefy Finance automates for you if you deposit into a vault.
This will be an example of how one vault works. This example is for Cake and BNB, the liquidity pool token. At step one, the user deposits this liquidity pool token into the vault, and in return for that, they receive what is called a Moo token. In this case, it is a Moo Cake-BNB token, and this represents a receipt or a proof of deposit into this vault.
This receipt can be redeemed at any time to receive your funds. At step three, the Beefy Finance vault implements the PancakeSwap smart contracts because the Cake-BNB pair is farmed on PancakeSwap.
This could be any another DeFi platform, but for this specific example, we're using PancakeSwap. The vault then goes ahead and earns fees for providing liquidity to that pool. If you're familiar with PancakeSwap, the fees earned are paid out in Cake coins.
This entire process right now could just have easily been done on PancakeSwap. But what Beefy Finance also does is automate the reinvestment of the rewards at points 4 and 5.
So it goes from just receiving Cake without being reinvested to automating the reinvestment so that the returns are compounded. Not only that, Beefy Finance also earns what you stake. So it automates the process of converting the Cake that you earn from the PancakeSwap pool back into Cakep-BNB liquidity pool tokens.
Whenever you want to pull your funds out of this vault, you don't receive Cake, but you instead receive what you deposited, which is Cake-BNP LP tokens. You can also receive the rewards back in BNB or whatever asset you deposited in the first place. It doesn't have to be Cake-BNB LP tokens. That's just what this example used. All right, this next infographic will explain the vault fee structure.
In this example, this vault has a total value locked of $10 million and the daily rate of 0.1%. This results in a daily profit of $10,000, of which 95.5% is reinvested back into the vault. The rest of the fees, which is 4.5%, is paid out to four different parties.
The first is the rewards to the Beefy stakers and the people that funded this vault. Beefy stakers are basically Beefy token holders, and they represent shareholders of the Beefy Finance platform.
0.5% is sent to the treasury of the company, and it's used to fund future research and development.
Another 0.5% is sent to the “harvest” caller, and this is the function of the smart contract that is used to handle reinvestment of the rewards. I think this requires gas fees to validate on the blockchain so these fees are used to pay for that.
And then finally, 0.5% is sent to the strategist. The strategist is the coder or the program developer responsible for this volts strategy and how it was implemented and how designed. So they get paid out 0.5% as well.
The last thing I'll talk about here is what is called Beefy Zap. It's an automation feature that Beefy Finance offers for its vaults.. I think this is best explained using an example.
The best example here is PancakeSwap. If you want to add liquidity to a liquidity pool and PancakeSwap, it's kind of a manual process, and you have to have both underlying assets ready at equal value. So in this case, it's BNB and Cake. You need equal amounts of each, and then you need to convert that BNB, Cake separate assets into a liquidity pool token. That liquidity pool token gets staked into the liquidity pool and then it earns interest, and that whole process is very manual.
What BeefyFinance does is it streamlines that and automates the entire process.
This feature is called Zap. So all you need to do is first choose your liquidity pool vault, and then you can choose one of four assets. If you have a token pair or if you have Cake or BNB, you only need one of them. You choose the amount you want to deposit and then Beefy’s app will automatically build the liquidity pool token and then stake it to the vault so it's completely automated. All you need is one asset.
I hope you gained a little bit of insight on how Beefy Finance works and what it entails. Thanks for reading this blog post. If you want to see more content and guides in the DeFi crypto space, please check out my YouTube channel.