What this article isn't
This isn't a click-by-click step-by-step on Yei's UI. What's stable is the underlying mechanics — collateral ratios, interest rates, liquidation thresholds.
We don't have a financial relationship with Yei Finance. Lending protocols have specific risk patterns that catch unprepared users.
What Yei Finance is
A decentralized lending protocol on Sei. Same general model as Aave or Compound on Ethereum — overcollateralized lending. To borrow, you must deposit collateral worth more than the loan. LTV ratios typically 60-75% for SEI, sometimes higher for stablecoin collateral.
Practical use cases: earn interest on idle assets, access liquidity without selling SEI, leverage exposure (sophisticated; risk-amplified).
How lending and borrowing work
Lenders deposit into pools; earn interest from borrowers proportional to deposit.
Borrowers deposit collateral and borrow other assets. Each collateral asset has a max LTV.
Key concept: your health factor. Above 1.0 = safe; below 1.0 = liquidatable. Decreases when collateral value drops, accrued interest grows the borrowed amount, or the borrowed asset appreciates.
Earning interest on deposits
- Approve the asset
- Deposit into the pool — receive aTokens/yTokens (receipt tokens)
- Interest accrues continuously; receipt tokens' redemption value grows
- Withdraw whenever you want — most pools have no lockup
Interest rates depend on pool utilization. The rate isn't fixed; it changes by block.
Borrowing against your SEI
- Deposit SEI as collateral — locked in the protocol
- Check the borrowing limit (collateral × LTV)
- Borrow the desired amount
- Monitor your health factor — stay well above 1.0 (most users target 1.5-2.0+)
- Repay when ready — protocol releases collateral when loan fully repaid
Until you repay, collateral stays locked. If you can't repay, you stay in the position indefinitely with liquidation risk.
Liquidation: the thing you must understand
If your health factor drops below 1.0, the protocol allows third parties to liquidate your position: a liquidator repays a portion of your loan, takes a portion of your collateral typically at a 5-15% discount.
Liquidation costs more than just repaying would have. Worse: liquidations often happen during market stress, crystallizing losses at a bad time.
How to avoid:
- Don't borrow at maximum LTV — 30-50% gives significant headroom
- Monitor your health factor
- Repay or add collateral if SEI drops
- Account for interest accrual — your loan grows over time
Other risks
Smart contract risk. Bugs or exploits affect both lenders and borrowers.
Oracle risk. Misfunctioning price oracles can trigger incorrect liquidations.
Liquidity risk. Withdrawal queues during extreme stress.
Interest rate spike. If utilization spikes, rates can rise sharply.
When to use Yei vs when not
Reasonable: hold SEI long-term and want yield, need short-term stablecoin liquidity with substantial collateral, allocating a small portion for diversification.
Questionable: no replacement liquidity to repay if SEI drops, tempted to leverage, concentrated position, using borrowed funds for short-term trades.
The honest take
Lending protocols are useful and risky in roughly equal measure. The deposit side is relatively safer. The borrow side adds liquidation risk on top.
Never borrow more than you can repay from sources outside the borrowed funds. The moment you can't repay without selling collateral, you're at the protocol's mercy if SEI drops.