Glossary · V
Vault
In DeFi, a vault is a smart contract that automatically manages a yield strategy — typically depositing user assets into one or more protocols, compounding rewards, and optimising for returns. Yearn Finance popularised the vault model. In MakerDAO, a vault is the collateralised debt position where users lock assets to mint DAI.
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How Vault works in practice
A vault is a contract implementing a strategy on depositors' behalf — compounding rewards, rebalancing, or managing a leveraged position. You deposit an asset and receive a share token whose value grows with the strategy's performance.
Worked example
Depositing 1,000 USDC into a vault issues share tokens. The vault farms, harvests and reinvests. When you withdraw, your shares are worth 1,000 plus net profit, less the vault's performance fee.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
A vault adds its own contract risk on top of every protocol it interacts with, and the strategy can change. Check what it actually does, what it can be changed to, and who has permission to change it.
Vault: common questions
- What is Vault?
- In DeFi, a vault is a smart contract that automatically manages a yield strategy — typically depositing user assets into one or more protocols, compounding rewards, and optimising for returns. Yearn Finance popularised the vault model. In MakerDAO, a vault is the collateralised debt position where users lock assets to mint DAI.
- How does Vault work in practice?
- A vault is a contract implementing a strategy on depositors' behalf — compounding rewards, rebalancing, or managing a leveraged position. You deposit an asset and receive a share token whose value grows with the strategy's performance.
- Can you give an example of Vault?
- Depositing 1,000 USDC into a vault issues share tokens. The vault farms, harvests and reinvests. When you withdraw, your shares are worth 1,000 plus net profit, less the vault's performance fee.
- What do people get wrong about Vault?
- A vault adds its own contract risk on top of every protocol it interacts with, and the strategy can change. Check what it actually does, what it can be changed to, and who has permission to change it.