DeFi vault

A DeFi vault takes in deposits, places them in a strategy (auto-compounding, rebalancing, allocation to money markets or liquidity pools) and hands back a share token in return. The reference standard is ERC-4626, the Tokenized Vault Standard, proposed in December 2021 by Joey Santoro and co-authors and moved to Final status in 2022. It defines a uniform interface for a vault wrapping a single underlying ERC-20 token, with canonical functions such as deposit, mint, withdraw, redeem and the conversions convertToShares and convertToAssets. As the strategy earns yield, total assets grow and each share is worth more underlying, rather than minting new tokens.

ERC-4626 made vaults interoperable and composable. Any protocol can integrate a 4626 vault without knowing its internal logic, because the interface is identical, which cuts integration errors and enables yield products built on top of one another. It underpins much of modern DeFi yield and tokenized-yield products, including yield-bearing RWA. As good practice, serious implementations mitigate the known first-depositor inflation attack with a dead initial deposit or virtual decimals.

Yearn Finance pioneered the concept with its yVaults, before the standard existed. Aave, Morpho and Lido offer vault-like assets and modules, and many implementations adopted ERC-4626 from 2022 onward. EIP-7540 extends the standard to asynchronous vaults, useful for RWA and strategies that do not settle instantly.