What Is Vault?
Also known as: DeFi Vault, Crypto Vault, Yield Vault
In short
A vault refers to structures in the crypto ecosystem where assets are held under specific rules. In DeFi it describes smart contracts that put deposited funds to work through automated strategies, and in custody services, accounts protected by extra security layers.
In DeFi vaults, users deposit tokens and in return receive a share token representing their stake in the vault. The vault puts the deposited funds to work through strategies such as lending, providing liquidity or staking, and usually reinvests the rewards earned automatically. Yearn.Finance is one of the protocols that popularized this model. The ERC-4626 standard on Ethereum defines a common structure so that different vaults can be integrated through the same interface. In collateralized lending protocols such as MakerDAO, a vault is the name of the position in which a user deposits collateral and borrows a stablecoin.
On the custody side, a vault describes accounts protected by stricter rules than hot wallets. Measures such as holding withdrawal requests for a set period (timelock), requiring multiple approvals (multisig) or keeping assets in cold storage are applied; the aim is to prevent assets from being withdrawn immediately even if the keys or the account are compromised.
The returns of DeFi vaults are not guaranteed. A vulnerability in one of the protocols used in the strategy, oracle manipulation or a bug in the vault code can lead to the loss of user funds. The more protocols a vault is connected to, the more layered the risks become.
Last updated: · This content is for information purposes only and is not investment advice.