Vault

A DeFi vault accepts deposits of a single asset, automatically deploys that capital into one or more yield strategies (supplying to lending markets, providing liquidity, staking), and issues share tokens representing proportional ownership of the pool. As yield accrues, each share becomes redeemable for more of the underlying asset.

ERC-4626, finalised in March 2022, standardised the vault interface on Ethereum: deposit(), mint(), withdraw(), and redeem() functions with a common accounting model based on shares and assets. Before ERC-4626, every protocol (Yearn, Compound, Aave) invented its own interface, requiring custom integration for each. The standard enables vaults to be used as collateral, in LP pools, and in aggregators without bespoke adapters.

Vault strategies range from simple (supplying USDC to Aave and earning interest) to complex (delta-neutral farming that combines a long staked position with a short perpetual futures hedge). Risk scales with strategy complexity: simple lending vaults have minimal smart-contract attack surface; multi-step strategies have many potential failure points.