<aside> ⚠️ This page provides brief pieces of information on ERC-4626 standards that are utilized in Factor’s vaults. More detailed information can be found in Resources section.
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Table of Content
ERC-4626 is a standard to optimize and unify the technical parameters of yield-bearing vaults. It provides a standard API for tokenized yield-bearing vaults that represent shares of a single underlying ERC-20 token. ERC-4626 also outlines an optional extension for tokenized vaults utilizing ERC-20, offering basic functionality for depositing, withdrawing tokens, and reading balances.
A vault is a smart contract or multi-sig solution designed to store and manage various assets, including cryptocurrencies. Each vault generates tokens that represent returns on the assets held within it. These generated tokens can be exchanged for the original tokens locked within the vault.
Yield-bearing assets are DeFi assets that offer additional gains beyond normal asset holding. By holding yield-bearing assets, users can earn extra returns that compound over time on some DeFi protocols. As the tokens locked in the vault or pool increase, the value of yield-bearing tokens will also increase
Developers that planning to create DeFi application which involves integrating tokens from various protocols need to conduct thorough research on each protocol. They must understand the unique features of each protocol and how it accrues yields, and then modify their codebase accordingly.
For instance, if developers want to integrate vDAI from Maker DAO and stETH from Curve, they must build custom solutions for each protocol to ensure a successful integration. However, this process is often stressful, time-consuming, and increases smart contract risk due to the potential for errors.
Since there is a common standard that can be integrated, there is no actual need to build separate adapters any longer. In a nutshell, it quickens development; with composability at its peak.
Similarly, it reduces cost because builders no longer need to get auditors to help with their adapters and interfaces. Most importantly, ERC-4626 enhances security among dApps and yield aggregators that are dealing with yield-bearing tokens.
In a nutshell, the ERC-4626 standard implements the following features: