Single-Asset Vault

Users deposit a single asset (e.g., ETH, USDC) and receive a vault-specific receipt token (e.g., yvETH). The protocol's smart contracts handle all complex strategy execution, abstracting away the need for manual management of liquidity pools, reward claiming, or gas optimization.

The vault's capital is deployed into predefined, on-chain strategies to generate yield. Common strategies include:

• Lending: Supplying assets to money markets like Aave or Compound.
• Liquidity Provision: Providing liquidity to Automated Market Makers (AMMs) like Uniswap.
• Staking: Staking proof-of-stake assets (e.g., stETH for Ethereum). The strategy is managed autonomously by the vault's controller.

By accepting only one asset, these vaults provide risk isolation. A user's exposure is confined to the volatility and smart contract risk of that single underlying asset and its specific strategy, avoiding impermanent loss and complexity from multi-asset pools. This makes risk assessment more straightforward for depositors.

Upon deposit, users receive a vault-specific ERC-20 token (e.g., Yearn's yVault tokens). This token:

• Represents a share of the vault's total assets.
• Accrues value automatically as the strategy generates yield.
• Is composable (DeFi Lego), meaning it can be used as collateral in other protocols, creating layered yield opportunities.

Vaults typically charge fees to sustain protocol development and management. A standard model includes:

• Management Fee: A small annual percentage of Assets Under Management (AUM).
• Performance Fee: A percentage (e.g., 10-20%) of the yield generated, charged upon withdrawal or harvest. These fees are transparently defined in the vault's smart contracts.

Prominent protocols offering single-asset vaults include:

• Yearn Finance (yVaults): The pioneer, offering vaults for ETH, stablecoins, and other assets.
• Convex Finance (cvxETH): Vaults for earning rewards from Curve Finance liquidity provision.
• Lido (stETH): A specialized vault for staking Ethereum, though often categorized as a liquid staking derivative.

The primary risk is the security of the vault's smart contract code. A bug or exploit could lead to a total loss of deposited assets. This risk is amplified by the vault's interaction with external DeFi protocols (e.g., lending markets, DEXs) which introduces additional attack surfaces. Users are reliant on the quality of the audit(s) the vault has undergone.

• Example: The 2022 Euler Finance hack, where a vulnerability in a lending vault's code led to a $197 million loss.

Vault performance depends entirely on the strategy logic coded by its developers. Flaws in this logic (e.g., incorrect slippage tolerance, faulty rebalancing) can erode yields or cause losses. Furthermore, many strategies rely on price oracles (like Chainlink) to make decisions. Oracle manipulation or failure can trigger incorrect actions, such as liquidations at unfavorable prices.

A single-asset vault's health is tied to the security and stability of the underlying protocols it uses (e.g., Aave, Compound, Uniswap). A hack or governance failure in a dependent protocol can cascade to the vault. For stablecoin vaults, depeg risk is paramount—if the vault's asset (e.g., USDC) loses its peg, the vault's value drops accordingly, regardless of strategy performance.

Vaults often have privileged functions controlled by an admin key or multi-sig. These can include pausing withdrawals, upgrading contract logic, or changing strategy parameters. This creates centralization risk—if the admin key is compromised or acts maliciously, user funds are at risk. The transparency and decentralization of the governance model are key security factors.

When a vault executes its strategy (e.g., swapping rewards, reinvesting), it incurs transaction costs and slippage. In volatile markets or during periods of low liquidity, large vault transactions can move prices, resulting in significant execution costs that reduce net yield. This is a persistent, non-exploit risk to returns.

Vaults are exposed to broader market risks. A sharp market downturn can trigger mass liquidations across leveraged strategies. They also face regulatory uncertainty; a change in how the vault's activities (e.g., staking, lending) are classified could impact its operation. Unlike a diversified portfolio, a single-asset vault offers no hedging against these macro risks.

A smart contract containing two or more tokens that facilitate decentralized trading and lending. This contrasts with a single-asset vault, which holds only one asset. Users who deposit into an LP receive LP tokens representing their share. While LPs can generate yield from fees, they expose providers to impermanent loss, a risk single-asset vaults are designed to avoid.

The act of locking crypto assets in a protocol to support network operations (Proof-of-Stake) or a specific application. While similar to depositing in a vault, native staking typically involves bonding periods and rewards in the network's native token. Single-asset vaults may automate staking strategies but abstract these mechanics from the end user.

A token whose circulating supply adjusts automatically to reflect accrued rewards, keeping each holder's wallet balance proportional to their share. Some single-asset vaults, like those for stETH, accept rebasing tokens. The vault's strategy must account for the increasing token balance to accurately calculate and distribute yield to depositors.

The encoded logic a single-asset vault executes to generate yield on deposited funds. A strategy is a smart contract that defines all actions: where to deposit (e.g., Aave, Curve), when to harvest rewards, how to swap tokens, and when to rebalance. A single vault can have multiple strategies, with governance deciding which is active. Strategy risk is a primary consideration for vault users.