OKX Blockchain 60 Lectures | DeFi Episode 3: What Are DeFi Aggregators?
YFI+0. 12%
Hello everyone, I'm Xiao K Jun. Previously, we discussed how DeFi represents the entire decentralized finance sector, and how DeFi's ecosystem traffic gateway is the aggregator. So today, let's introduce you to what DeFi aggregators are all about.
We all know that in traditional finance, we can entrust our money to professional fund management teams, who will invest this capital in a diversified portfolio, and after generating returns, they will take a certain percentage as profit share.
What is an aggregator in DeFi? It is an aggregation platform that supports multiple DeFi protocols. It can automatically migrate positions between various DeFi protocols offering liquidity mining, helping users earn higher returns. Simply put, it is a fund product in the DeFi world — except the centralized investment management team is removed, and the smart contracts written in code take over the wealth management functions of traditional funds.
Some of you might be wondering: how can code replace people for wealth management? Below, we'll use the leading aggregator project — Yearn Finance — as an example to explain its operational principles.
Yearn Finance's returns come from two main sources. The first source is the DeFi lending projects we mentioned earlier. They share a common business logic: providing loans to these projects can earn you a portion of the project's token returns as well as loan interest. However, the return rates of these lending projects vary.
The aggregator itself does not provide lending functionality, but its smart contracts can connect to other lending projects. When we deposit our digital assets into an aggregator, the aggregator's smart contracts automatically search for the lending protocol with the highest returns and transfer the assets there to provide loan funds and earn returns.
Additionally, another source of returns comes from other DeFi trading projects. These projects require funds to provide liquidity in order to ensure trading stability. In return, they give a portion of the trading fees and their project's tokens back to liquidity providers. As a multi-protocol aggregation platform, the aggregator can also connect its smart contracts to these trading projects to automatically capture returns.
Therefore, an aggregator functions as an automated trading strategy investment product. When we deposit our digital assets — stablecoins — into the aggregator, the aggregator's smart contracts automatically connect to the contracts of lending and trading projects, select the one with the highest return rate for investment, and pool all the returns together. These returns are then distributed to users according to certain rules.
Overall, aggregators are currently a crucial part of the DeFi ecosystem. They not only serve a wealth management function but also act as a tool that lowers the barrier to entry for DeFi usage. Perhaps in the future, as the decentralized market continues to grow, aggregators — serving as the ecosystem's traffic gateway — will truly help DeFi achieve a decentralized financial world where everyone can freely participate.
Special thanks to Bear Yong for his assistance and guidance on the content of this episode.
Sina Weibo: @熊越Xiong Yue
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