Confusion is currently reigning over Yeelight devices (it's mainly lights, but I'm not going to write every time Yeelight lights) and their ability to be controlled locally by Home Assistant. Some users such as @hkrob on Twitter are reporting that the integration is broken and the option to enable LAN control has been removed due to a firmware update.
At the same time, there is a Home Assistant alert active, informing users of Yeelight's alleged decision. Is that really what is going on? Yes and no, but mainly no. Let me explain because currently the blame is being directed at the wrong people.
What we know
It is known that both the Yeelight Bedside Lamp 2 and an RGB bulb which identifies as the yeelink.light.color3 in the Yeelight app can no longer be locally controlled following a firmware update.
The issue with the Yeelight Bedside Lamp 2 appears to be caused by an error made by Yeelight, and they are offering to roll back the firmware on their forums. The confusion surrounding the yeelink.light.color3, however, is another story and needs some explaining.
While I'm not trying to have a go at @hkrob, it is important to keep in mind that Yeelight is a Chinese company and their Tweets might be written by someone who doesn't speak English as a first language. Specifically, the part where Yeelight allegedly admitted that Xiaomi forced them to remove local control is, to my understanding, not a reflection of what is really going on.
Xiaomi is removing local control, not Yeelight
The exact relationship between Yeelight and Xiaomi isn't known to me and the deeper you dig, the murkier the waters get. Whatever the situation is, the two companies obviously have many ties and often times sell what is essentially the same product under a different name.
The light which identifies as a yeelink.light.color3 in the Yeelight app isn't in fact a Yeelight. It belongs to the Mi/Mijia family of smart home products but is almost certainly manufactured by Yeelight (or maybe Xiaomi produces all the Yeelight devices) or purchased from a shared OEM. To make things even more confusing, the yeelink.light.color3 can be added to the Yeelight app and Yeelight devices can be added to the Mi Home app.
According to representatives of Yeelight, Xiaomi has decided to remove local control from their lights. This is why the yeelink.light.color3 will no longer have the option of being locally controlled, even when used with the Yeelight app. The same will happen to any device which doesn't have the Yeelight branding but not to devices that do.
What will happen to the Home Assistant and Yeelight integration?
As things stand, Yeelight devices which are branded as such and not Mijia/Mi or Xiaomi, should still have the ability to be locally controlled and Yeelight has made assurances that they are committed to creating an open ecosystem (how long this holds true remains to be seen). I say should because I don't own any Yeelight devices.
If you have anything besides Yeelight devices connected to the Yeelight app, it is possible that local control of that device will be removed by a firmware or app update (or already has been removed).
In the short term, whatever you do, do not update any of your Yeelight, Mi/Mijia, or Xiaomi devices until the confusion is cleared up. Even better, keep all of your devices local only and do not let any of them communicate with the internet. It appears that Xiaomi won't reverse this decision and your goal should now be to keep your devices running on the current firmware.
As we've seen previously, it can pay off letting the vendor know of your disappointment. Keep in mind that it is Xiaomi/Mi/Mijia you should be addressing and not Yeelight. If you bought a device because it promised to have local control you have a right to that device.
The long-term solution? Use Zigbee.
In the long term, it is possible that Yeelight will also remove any local control from their devices. That is why I recommend devices which aren't reliant on any cloud services and never have to call home. And you can even buy cheap devices from Xiaomi without worrying about the future or potential firmware updates. I'm talking about Zigbee products, of course. Zigbee is the best solution for anyone wanting an open and locally controller ecosystem.