Yield Vaults & Aggregators

01 · Concept — what problem does it solve?

Chasing yield by hand is gas-expensive, attention-hungry, and easy to get wrong. Yield vaults (Yearn, Beefy, and the curator vaults on Morpho) abstract it: you deposit an asset, the vault runs a strategy — supply to a lending market, farm rewards, sell them, recompound — and your share appreciates automatically. It is the robo-advisor of DeFi, and the standardization of vaults (ERC-4626) made them snap together with everything else.

02 · Mechanics

• ERC-4626: the tokenized-vault standard — deposit assets, get shares; shares redeem for a growing slice of the pool. One interface every protocol understands.
• Auto-compounding: the strategy periodically harvests rewards, swaps them to the base asset, and redeposits — turning simple APR into compounded APY.
• Strategies: the swappable logic — lending, LP-and-farm, leveraged staking loops, basis trades. Governance or curators approve and rotate them.
• Curated allocation: modern vaults (MetaMorpho) spread deposits across many isolated markets with risk caps, so a curator does the market selection passive depositors can't.
• Fees: a performance fee (and sometimes management fee) on harvested yield funds the vault operator.

03 · Formulas

// share price only rises as the strategy earns
share_price = total_assets / total_shares

// compounding lift from harvesting n times a year at rate r
APY = (1 + r/n)^n − 1        // more frequent harvest → higher APY, more gas

// net yield to depositor
net = gross_strategy_yield − performance_fee − gas

04 · Edge cases & risks

• Risk is inherited and stacked: a vault is only as safe as the riskiest protocol its strategy touches. A vault on a lending market on an LST on a bridge stacks every layer's failure probability.
• The Pickle lesson (2020): a $19.7M exploit hit a yield vault via an unvalidated strategy address — composability means inherited attack surface. See Pickle Finance.
• Strategy/curator trust: depositors rarely audit the strategy; a malicious or careless operator (or an upgradeable strategy contract) can lose the whole vault.
• Yield-source fragility: much DeFi yield is emissions or basis trades that evaporate or invert; a quoted APY is a snapshot, not a promise.
• Redemption runs: a vault is fractional by design. If many depositors exit at once, the strategy must unwind its least-liquid positions at a loss, and the last to redeem eats the slippage — a bank run in miniature. Stress-test "what if I'm last out the moment incentives stop?", not just the headline APY.