What Is a DeFi Vault?
A DeFi vault is a pooled strategy: you deposit tokens, the vault's contracts put them to work (lend, LP, restake, harvest), and you get a receipt token that claims your share. Yearn made the pattern famous. ERC-4626 standardized the receipt. The pitch is "set and forget yield." The reality is someone else's strategy plus your liquidation and upgrade risk.
How It Actually Works
- Deposit asset X, receive shares. Share price is supposed to rise as harvests compound. Withdraw by burning shares for X, minus fees and slippage inside the strategy.
- The vault is only as good as the places it deposits. A vault into a thin AMM range, a shaky oracle, or an unaudited farm is a wrapper on that risk, not a shield.
- Fees are usually a cut of yield, sometimes of principal on withdrawal. Read both.
Risks and Common Mistakes
- Counting advertised APY as a bond yield. Ask the who-pays question about every inner strategy.
- Ignoring the vault's own proxy and timelock. You now depend on two admin surfaces: the vault and the destination protocol.
- Receipt tokens that depeg from the underlying in a rush for the door. Same family as an LST wobble.
When It Matters
Any "just deposit here" yield product, including ones inside wallets. If you cannot name the strategy, you are not earning. You are delegating. The DeFi page still applies.
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