Vaults. They hold your money. You trust them to keep funds safe. But if that\’s all you wanted, you\’d store your funds in a cold wallet, right? We use vaults so we can access their strategies, the functions that actually generate the return we come to DeFi for.
Typical vaults have a few weaknesses:
- Only one strategy can be implemented per vault, which means you\’re only getting exposure to one source of yield.
- Yield is easily diluted when vaults only utilize a single strategy, and multi-strategy vaults spread the yield around to support larger deposit amounts.
- When a strategy becomes unprofitable, you’d need to withdraw funds. You’d incur a taxable event in most jurisdictions when you reposition your assets.
Are these weaknesses insurmountable? Do we have to suffer single strategy inefficiency forever? NO!
Fortunately, brighter minds than I have devised a solution.
One asset, many strategies. It\’s kind of the opposite of what Blackrock does, but it works well for our purposes.
Multi-strategy vaults take single assets like BTC, ETH, WFTM, etc., and apply up to 20 different strategies to maximize return. The strategies split up the entire pool of the single asset and work their magic on their share. If one strategy outperforms another, then admins can change the strategy allocation to match. Also, if a strategy starts losing money, its allocation is automatically reduced! This ensures more funds are being used more efficiently than ever before.
Previously, if a new farm was deployed or an existing farm upgraded, developers would have to deploy a new crypt, and users would have to migrate. With the advent of multi-strategy vaults, developers can directly deploy a new strategy to the vault! Users don\’t have to move a muscle, and their funds keep earning.
Currently, this technology is only applicable to single-asset vaults. Check out how Robo-Vault uses them for more examples.
Zero Deposit and Withdrawal Fees
Withdrawal fees on crypts exist for a very pragmatic reason. No, not greed. Safety.
Believe it or not, small withdrawal fees on vaults are there to prevent sandwich attacks. The fee is often small enough that regular users don\’t have to worry about it but significant enough to make sandwich attacks economically unfeasible.
Multi-strategy vaults make this fee obsolete. New multi-strategy vaults prevent harvests from being called by anyone but registered addresses. Furthermore, the profit from harvests is released slowly over six hours. These two features completely prevent sandwich attacks!
ERC 4626 Compliant
I\’m not gonna say it any better than the Ethereum Foundation so in their own words:
Lending markets, aggregators, and intrinsically interest-bearing tokens help users find the best yield on their crypto tokens by executing different strategies. These strategies are done with slight variation, which might be error-prone or waste development resources. ERC-4626 in yield-bearing vaults will lower the integration effort and unlock access to yield in various applications with little specialized effort from developers by creating more consistent and robust implementation patterns.Ethereum
So, who cares? Developers and, by extension, you, the user of their software! By being ERC 4626 compliant, strategies become much more composable or \”lego-ified.\” They lock together more efficiently! That means strategies can be designed and implemented much more quickly as both vaults and farms are standardized. They speak the same language!
What does all this mean?
Your time horizons just shot through the roof because you can truly set your assets and forget them! You may be asking, \”what will I do now that I never need to touch my assets again?\” ERC4626 compliance makes the receipt tokens for multi strategies super simple for lending protocols to integrate, so while your assets are earning interest, you can take out a loan and jump into whatever degenerate trade your group chat is talking about (not financial advice by the way).