Yearn provides tools to maximize DeFi yields through automatic re-investment of incentives, rewards and other types of payouts.
Yearn can be thought of as a decentralized asset manager where users deposit their idle crypto assets in various algorithmically managed investment strategies ("vaults") to earn yield. These vaults then strategically invest the user's assets in other DeFi protocols with the goal of maximizing yield across platforms. Yearn achieves this through automatic compounding of token rewards and "profit switching", which means funds are automatically moved between DeFi protocols to always earn the highest interest rates.
Similar to a traditional asset manager, Yearn makes money by charging management, performance and withdrawal fees on its investment vehicles. Yearn currently offers V1 and V2 vaults with the primary distinction being the fees charged. V2 vaults charge a 2% management fee (none for V1) rather than a withdrawal fee (0.5% for V1) in order to better align the protocol's incentives with attracting capital into the system versus exiting the system.
You generate yield by depositing your asset in a vault strategy. These strategies generally involve depositing the underlying assets to various money market platforms to earn protocol fees and rewards. Your yield can come from lending interest, trading fees, staking rewards, as well as savings on transaction fees from socializing gas costs across all pool depositors.