Single-Asset Deposit

A single-asset deposit is a liquidity provision method where a user supplies only one type of cryptocurrency—such as ETH, USDC, or WBTC—to a DeFi protocol. This contrasts with liquidity pool contributions, which typically require depositing a pair of assets in a specific ratio (e.g., 50% ETH and 50% USDC). By accepting a single asset, protocols simplify the user experience and reduce the complexity and impermanent loss risk associated with managing paired deposits. This model is central to lending protocols like Aave and Compound, where users deposit an asset to earn interest, and to certain automated market maker (AMM) designs that utilize oracles to manage the pool's composition.

The primary mechanism involves the protocol minting a receipt token, often called a vault share or cToken, which represents the user's deposit and accrues yield. For example, depositing USDC into Aave generates aUSDC tokens. The deposited asset is then typically deployed by the protocol to generate yield through strategies like lending it to borrowers, providing it as single-sided liquidity to a specialized AMM pool, or using it as collateral in more complex yield farming strategies. This allows depositors to earn a passive return—composed of interest, trading fees, or reward tokens—without actively managing the underlying asset.

Key technical advantages of single-asset deposits include capital efficiency and reduced barrier to entry. Users are not forced to sell or acquire a second asset, preserving their portfolio allocation. It also mitigates impermanent loss, a risk inherent to paired liquidity provision where price divergence between the two assets can lead to a loss compared to simply holding. However, risks remain, including smart contract risk, oracle manipulation risk for AMMs relying on price feeds, and the protocol's specific investment risk associated with its yield-generation strategy. The security and sustainability of the yield are entirely dependent on the protocol's design and governance.

Common implementations are found across major DeFi sectors. In lending markets, it is the standard deposit method. In decentralized exchanges (DEXs), protocols like Balancer (with weighted pools that can accept single assets) and specialized AMMs like Uniswap V3 (through peripheral smart contracts) enable single-asset liquidity provision. Yield aggregators and vaults (e.g., Yearn Finance) also heavily utilize this model, pooling user deposits of a single asset to automate complex yield-optimizing strategies across multiple protocols, abstracting the complexity from the end user.

When evaluating a single-asset deposit opportunity, analysts should scrutinize the yield source, the tokenomics of any reward tokens, the withdrawal conditions (including fees and lock-up periods), and the protocol's audit history and total value locked (TVL). Understanding whether the yield is generated from sustainable protocol fees or from inflationary token emissions is crucial for assessing long-term viability. This deposit model remains a cornerstone of passive DeFi participation, balancing accessibility for users with flexible capital deployment for protocols.

In a single-asset deposit, a user provides liquidity using only one type of token. This contrasts with liquidity provision in traditional Automated Market Makers (AMMs) like Uniswap, which typically require depositing two assets in a specific ratio. The deposited asset is often used by the protocol in various yield-generating strategies, such as lending it out on a money market, providing it as collateral in a leveraged position, or staking it in a proof-of-stake network. In return, the user receives a liquidity provider (LP) token or a receipt token representing their share of the pool.

The primary mechanism involves the protocol accepting the deposit and algorithmically deploying the capital. For example, depositing USDC into a lending protocol like Aave adds it to a pool available for borrowers, with the depositor earning interest. In a liquid staking protocol like Lido, depositing ETH results in the receipt of stETH, which accrues staking rewards. The protocol manages the complexities—like impermanent loss risk from pairing assets or validator slashing risk—abstracting them away from the user. This simplicity makes single-asset deposits a lower-barrier entry point for yield generation compared to more complex liquidity mining strategies.

Key benefits include capital efficiency, as users are not required to split their holdings, and reduced exposure to volatility of a paired asset. However, risks remain, primarily smart contract risk and the protocol risk associated with the strategy's underlying mechanics. The yield, often displayed as an Annual Percentage Yield (APY), is generated from fees (e.g., borrowing interest, trading fees) or rewards (e.g., staking rewards, protocol incentives). Users can typically withdraw their deposit plus accrued yield by burning their receipt token, though some protocols may impose lock-up periods or unstaking delays.