Zap-in / Zap-out

A Zap-in function allows a user to deposit a single token (e.g., ETH, USDC) into a liquidity pool or yield vault. The underlying smart contract automatically executes the required series of transactions, such as swapping and adding liquidity, in a single step. This abstracts complexity for the user, who does not need to manually manage multiple trades or approvals.

• Example: Zapping 100 ETH into a Uniswap V3 ETH/USDC position. The contract swaps half the ETH for USDC and provides liquidity with both assets.

A Zap-out function enables the reverse process: withdrawing a liquidity position (e.g., LP tokens) and receiving a single preferred asset. The contract automatically removes liquidity, sells the unwanted tokens, and returns the proceeds as one token. This solves the problem of impermanent loss management and unwanted token exposure upon exit.

• Example: Zapping out of a Curve 3pool LP position to receive only DAI, regardless of the pool's current composition.

Zaps consolidate multiple blockchain transactions (swaps, approvals, deposits) into one, significantly reducing gas costs and saving user time. Instead of 3-5 separate transactions, a user submits only one. This efficiency is critical for interacting with complex DeFi strategies on Ethereum and other networks where gas fees are a primary concern.

Zaps are a prime example of DeFi composability, where protocols integrate with decentralized exchanges (DEXs) like Uniswap or SushiSwap, lending markets, and yield aggregators. A zap contract acts as an intermediary router, calling functions across different protocols atomically. This enables seamless movement of capital across the DeFi ecosystem.

Zaps are widely used for:

• Providing Liquidity: Entering Automated Market Maker (AMM) pools without managing multiple assets.
• Yield Farming: Depositing into a vault that automatically stakes LP tokens in a farm.
• Portfolio Rebalancing: Exiting one position and entering another in a single action.
• Bridge Aggregation: Converting assets across chains and depositing them into a destination protocol.

Using a zap requires granting the zap contract an allowance to spend your tokens. This introduces smart contract risk, as a bug or malicious code in the zap could lead to loss of funds. Users must verify the zap contract's audit status and reputation. Zaps often integrate with router contracts from established DEXs to handle the swapping logic securely.

A Zap is a smart contract that bundles multiple on-chain actions into one atomic transaction. For example, a Zap-in function might automatically:

• Swap a user's ETH for the correct ratio of two tokens (e.g., USDC and DAI).
• Deposit those tokens into a liquidity pool (e.g., a Uniswap V2 pair).
• Stake the received LP tokens into a yield farm.

This eliminates the need for manual swaps, approvals, and separate deposits, reducing complexity, time, and gas costs.

Zaps are most commonly used for liquidity provisioning and yield optimization.

Key Applications:

• Single-Asset Entry: Deposit a single token (e.g., ETH) directly into a liquidity pool that requires a pair.
• Vault/Strategy Entry: Deposit a base asset directly into a complex yield aggregator (like Yearn vaults) that may involve multiple underlying protocols.
• Full Exit (Zap-out): Withdraw a single desired asset from a complex position, automatically unwrapping LP tokens, exiting farms, and swapping to the target token.

A Zap smart contract typically uses a router pattern, interacting with decentralized exchanges (DEXs) like Uniswap or Curve and liquidity pool contracts.

Key Components:

• Swap Router: Handles token conversions to achieve the required asset ratios.
• Liquidity Manager: Calls the addLiquidity or removeLiquidity functions on the target pool.
• Approval Handler: Often includes optimized approval logic, sometimes using permit signatures for gas-less approvals.
• Slippage & Deadline Controls: Protects users from front-running and stale transactions.

Zaps significantly lower the barrier to entry for complex DeFi strategies.

Main Advantages:

• User Experience (UX): Transforms a 5-10 step process into a single click.
• Gas Efficiency: Can be cheaper than executing each step individually due to bundled transactions.
• Reduced Error: Minimizes user mistakes in calculating ratios, managing approvals, or executing steps out of order.
• Accessibility: Allows users to participate in strategies without deep technical knowledge of the underlying protocols.

Using Zaps introduces specific risks that users must acknowledge.

Key Risks:

• Smart Contract Risk: Users are trusting the Zap contract's code, which adds another layer of potential vulnerability beyond the underlying protocols.
• Slippage & Price Impact: Large Zap transactions on a DEX can cause unfavorable prices, especially for illiquid pools.
• Fee Stacking: Zap services may embed additional fees on top of the standard DEX/pool fees.
• Centralization: Some Zap providers use privileged admin keys to update contract logic, creating a trust assumption.

Zap transactions rely on a single, often complex, smart contract to execute multiple steps atomically. This creates a concentrated point of failure. Key risks include:

• Logic bugs in the zap router can lead to incorrect asset routing or fund loss.
• Upgradeability risks if the contract is controlled by an admin key.
• Reentrancy vulnerabilities as the contract interacts with multiple external protocols. Users are placing full trust in the zap contract's security, which may have undergone less rigorous auditing than the underlying protocols it interacts with.

Zaps are not standalone; they depend on the security and correct function of every integrated protocol and oracle. A failure in any dependency can compromise the entire transaction.

• Oracle manipulation can lead to incorrect pricing for swaps, resulting in unfavorable slippage or arbitrage losses.
• Protocol exploits in a connected lending or AMM platform can be triggered or exploited via the zap.
• Liquidity issues in a target pool can cause the zap to fail or execute at a terrible price, with gas costs still incurred.

The multi-step nature of zaps exposes users to heightened slippage and Maximal Extractable Value (MEV) risks.

• Slippage accumulates across each swap and liquidity provision step, which may not be transparently communicated.
• Sandwich attacks are a major threat: MEV bots can front-run a zap's large swap, raising the price, and back-run it to profit, significantly degrading the user's final output.
• Transaction ordering in the public mempool makes these attacks feasible unless the zap is submitted via a private RPC or flashbots-like service.

Zaps require users to grant token approvals, often with high or infinite limits, to the zap contract. This creates significant exposure.

• Infinite approvals are common for convenience but pose a persistent risk if the contract is later compromised.
• Dusting attacks: Malicious actors can send small amounts of obscure tokens to a user's wallet. A poorly coded zap might attempt to interact with these tokens, causing a failed transaction and lost gas.
• Residual balances: After a zap-out, small amounts of dust or reward tokens may be left in the contract or wallet, which could be exploited in future interactions.

Many zap services are operated by teams that retain administrative control over the router contracts, creating centralization risk.

• Pause functions can be activated, freezing all user funds in mid-transaction.
• Fee changes can be implemented arbitrarily, increasing costs.
• Rug pull potential: In extreme cases, a malicious admin could upgrade the contract to steal funds. Users must assess the trust model: is the zap non-custodial and immutable, or does it rely on a trusted entity?

The abstraction provided by zaps can obscure critical details, leading to user mistakes.

• Misunderstood output: Users may not fully comprehend the LP token, vault shares, or debt position they receive.
• Hidden fees: Protocol fees, zap service fees, and gas costs may be bundled, making true cost analysis difficult.
• Irreversible actions: A zap-into a leveraged position or illiquid pool cannot be easily undone without potentially significant loss. The convenience of a 'one-click' action must be balanced with the complexity of the underlying financial position being created.

Zap-in functions are primarily designed to simplify the process of adding liquidity to an Automated Market Maker (AMM) pool. Instead of manually acquiring and depositing two or more tokens in the correct ratio, a user can zap in a single token (e.g., ETH) and the protocol automatically handles the swap and deposit. This reduces slippage, saves on gas fees from multiple transactions, and lowers the technical barrier for liquidity providers.

Zap-out functions provide single-asset withdrawal from liquidity positions. When a user wants to exit a liquidity pool token (LP token), a standard withdrawal returns both underlying assets. A zap-out allows the user to receive their share of the pool's value in a single preferred token (e.g., all in USDC), automatically selling the other asset(s) within the same transaction. This is crucial for managing portfolio concentration and simplifying exits.

The core smart contract enabling zap functionality is a router or zap contract. It orchestrates a series of atomic transactions:

• Approving token spends
• Swapping tokens via a DEX aggregator or specific AMM
• Depositing/Withdrawing liquidity from the target pool
• Returning the final asset(s) to the user This contract must be carefully audited as it holds temporary custody of user funds during the multi-step process.

Zap functions are a foundational feature of yield aggregators (like Yearn Finance) and vault strategies. Users can zap a single asset directly into a complex yield-earning position. The aggregator's zap contract handles:

• Converting the asset to the required inputs
• Depositing into the vault
• The vault then automatically farms, stakes, or lends the assets This creates a one-click experience from a base asset to a yielding position.

Zap transactions are not free from market forces. Key considerations include:

• Slippage Tolerance: The maximum price movement a user accepts for the embedded swap(s).
• Price Impact: The effect the zap's swap has on the pool's price, especially for large volumes or low-liquidity pools.
• Minimum Received: A parameter that ensures the user gets at least a certain amount of the output token, protecting against front-running or extreme volatility mid-transaction.

A primary value proposition of zaps is gas efficiency. Bundling multiple operations (swap, approve, deposit) into one transaction saves significant gas compared to executing them separately. Advanced zap contracts may use:

• Multicall to batch function calls
• Gas-efficient DEX routes
• Internal balance accounting to minimize state changes This makes complex DeFi interactions economically viable for smaller investors.