YFI is a DeFI yeild farming system created to make it easier for users to automate their yield farming strategies.
Yearn.finance (YFI) is an ERC-20 governance token that powers the community governance of the Yearn.Finance system.
Yearn is a collection of DeFi services, intended to act as a simple gateway for the wider DeFi ecosystem. Its highlight is the ability to automatically invest user deposits in the highest-yielding place available in the DeFi ecosystem, through Yearn Vaults.
Users deposit funds into the vault, and those funds are then collectively allocated to the highest yield farming available, and the returns from those are distributed proportionally to users, accumulating to the yTokens users are given when they make deposits. Yearn can similarly let people make stablecoin deposits straight to the highest-yielding lending platform available, to earn competitive returns on stablecoins.
In addition to the ease of use, this also helps batch transactions to save on Ethereum gas fees. The service doesn't come for free though, as performance fees and other costs are extracted along the way. These fees can be paid to YFI token holders as dividends, in an amount the community of token holders agrees on.
This is where holding YFI governance token can be lucrative as it receives a cut of the fees within the Yearn.Finance platform, and holders can vote to change, increase or add any other mechanisms.