ERC-20 vs ERC-4626: Vault Token Standard

Industry Standard: Powers over 450,000 tokens and $50B+ in DeFi TVL. This matters for launching any fungible asset (e.g., governance tokens like UNI, stablecoins like USDC) that needs to integrate with every DEX (Uniswap), lending protocol (Aave), and wallet.

Minimal Interface: Core functions like transfer and approve are understood by all tooling. This matters for projects prioritizing rapid deployment and avoiding integration friction with existing infrastructure like MetaMask and Etherscan.

Standardized Vault Math: Provides previewDeposit, previewRedeem, and convertToShares functions. This matters for building yield aggregators (Yearn) or lending markets that need predictable, non-dilutive share calculations without custom integrations for each vault.

Reduced Integration Risk: A single, audited standard replaces custom vault code, mitigating vulnerabilities. This matters for protocols like Balancer that create yield-bearing pools, as it minimizes attack surfaces and simplifies security reviews.

No Native Yield Logic: Protocols must implement custom, often complex systems to track accrued interest (e.g., cTokens, aTokens). This matters for developers building yield-bearing assets, as it increases audit cost and creates integration fragmentation.

Specialized Use Case: Currently adopted primarily by vault/aggregator protocols (~$5B TVL). This matters for projects issuing simple utility tokens, as the added complexity of asset() and totalAssets() functions provides no benefit and limits wallet compatibility.

Dominant Liquidity & Integration: Over 500,000 deployed contracts and $1T+ in cumulative transfer volume. This matters for projects requiring maximum DEX/CEX compatibility (e.g., Uniswap, Coinbase) and broad wallet support (MetaMask, Ledger).

Minimal Interface: Core functions are transfer, balanceOf, approve. This matters for developers building simple utility tokens or governance tokens where custom logic (like Aave's AAVE or Uniswap's UNI) is implemented off-chain or in separate contracts.

Standardized Vault Logic: Defines a unified interface for deposit, withdraw, and share conversion. This matters for integrators (like Yearn, Balancer) who can build once and support any compliant vault, reducing integration costs by ~70%.

Reduced Integration Risk: Eliminates custom adapter code, a major source of TVL loss (e.g., past exploits in yield aggregators). Standardized preview functions prevent MEV and slippage attacks for users interacting directly with vaults like Sommelier.

No Yield Standardization: Protocols must build custom systems to track accrued interest, leading to fragmentation. This matters for users who must manually claim rewards and for developers managing complex balance accounting.

Specialized Use Case: Primarily for yield-bearing vaults, not general tokens. ~2,000 deployments vs. ERC-20's half-million. This matters for projects that don't generate yield; the extra interface is unnecessary complexity.

Maximum Integration: The de-facto standard with support in every major DeFi protocol (Uniswap, Aave, Compound). This matters for liquidity bootstrapping and ensuring your token is a first-class citizen across the ecosystem.

Established Foundation: A simple, audited interface (balanceOf, transfer, approve) with predictable gas costs. This matters for issuing governance tokens, stablecoins, or utility assets where yield logic is handled off-chain or by a separate protocol.

Built-in Capital Efficiency: Standardizes the interface for yield-bearing vaults (e.g., Yearn, Lido's stETH). Enables seamless integration between lending markets (Aave V3), aggregators (Yearn), and indices (Index Coop) without custom adapters.

Eliminates Adapter Fragmentation: Provides a single, audited interface (deposit, mint, previewRedeem) for vault shares. This drastically reduces security overhead and audit costs for integrators, a key factor for protocols like Balancer or Gearbox building leveraged yield strategies.

Developer Overhead: Requires off-chain or custom on-chain logic to track accrued yield, leading to integration complexity and higher gas costs for protocols that need real-time yield data (e.g., money markets calculating collateral value).

Adoption Trade-off: While growing rapidly (adopted by Aave V3, Frax Finance, Sommelier), it lacks the universal wallet and DEX support of ERC-20. This matters for end-user applications where direct vault token liquidity is critical.