Vault

A vault is a self-executing piece of code that takes custody of deposited assets and carries out a predefined set of actions with them, removing the need for a person to manually manage the position. Depositors typically receive a receipt token representing their share of the pool, which grows in value (or increases in quantity) as the underlying strategy earns returns.

Most yield vaults follow the ERC-4626 standard on Ethereum and EVM-compatible chains, which standardizes how deposits, withdrawals, and share accounting work so different vaults and front ends can plug into one another safely. A strategy contract attached to the vault routes the pooled funds into lending markets, liquidity pools, or staking contracts, harvests the resulting rewards, and reinvests them automatically, a process often called auto-compounding. Some vaults run a single strategy; others, sometimes called curated or allocator vaults, actively rotate capital between several underlying protocols to chase the best risk-adjusted rate.

Vaults exist because managing yield farming positions by hand is slow, gas-intensive, and easy to get wrong; pooling deposits also spreads transaction costs across many users. Beyond yield generation, the term also covers treasury vaults used by DAOs and protocols to hold reserves, often gated by multi-signature approval or timelocks rather than an automated strategy.

Vault risk is layered: a user is exposed not only to the vault's own contract but to every underlying protocol it interacts with, so a bug or exploit anywhere in that chain can affect deposited funds. Reviewing audit history, strategy transparency, and withdrawal terms before depositing is standard practice in DeFi.