Vault

A vault in DeFi is a smart contract that automates yield-generating strategies by pooling users' assets and optimizing how they are deployed across various protocols. Vaults are the core feature of many yield aggregators, allowing users to earn passive income without manually managing deposits, rewards, or compounding. Once funds are deposited into a vault, the strategy takes over — executing trades, harvesting rewards, and reinvesting profits to maximize returns.

Vaults are used across DeFi ecosystems such as Yearn Finance, Beefy Finance, Idle Finance, Convex, and Balancer, each with different strategies and risk profiles.

How Vaults Work

• User Deposit – Users deposit assets (e.g. stablecoins, LP tokens, governance tokens) into the vault.
• Strategy Execution – The vault deploys assets into predefined DeFi strategies (e.g. lending, staking, farming).
• Auto-Harvesting – Rewards earned from the strategy are periodically harvested by the vault.
• Auto-Compounding – Harvested rewards are reinvested to boost the overall APY.
• Withdraw Anytime – Users can usually withdraw their assets along with accumulated yield (subject to fees or lockups).

Key Features

• Automated Yield – Vaults handle all strategy execution, reinvestment, and optimization.
• Strategy-Specific – Each vault follows a unique strategy, such as Curve LP farming or lending on Aave.
• Non-Custodial – Users retain control through smart contracts; no third-party custody involved.
• Tokenized Positions – Users may receive vault tokens (e.g. yTokens, mooTokens) representing their share.
• Gas-Efficient – Shared transactions reduce gas costs compared to manual interactions.

Benefits of Vaults

• Passive Income – Users earn optimized yield without actively managing assets.
• Time-Saving – Vaults handle all yield farming and compounding automatically.
• Maximized APY – Frequent harvesting and compounding increase overall returns.
• Reduced Complexity – Vaults simplify access to advanced DeFi strategies.
• Portfolio Diversification – Users can access multiple strategies through different vaults.

Use Cases of Vaults

1. Stablecoin Yield Vaults – Platforms like Yearn offer vaults for USDC, DAI, and USDT with auto-compounding.
2. LP Token Vaults – Users stake LP tokens from Uniswap or Curve to farm rewards automatically.
3. Auto-Staking Vaults – Projects like Beefy offer vaults for auto-staking native tokens (e.g. BNB, AVAX).
4. Governance Token Vaults – Users deposit tokens like CRV, AAVE, or SUSHI to earn boosted rewards.
5. Cross-Chain Vaults – Multi-chain vaults manage strategies across chains like Ethereum, Arbitrum, Polygon, and Avalanche.
6. Institutional Yield Tools – DAOs and treasuries use vaults to passively grow reserves in a risk-managed way.