Definition
A vault in DeFi is a smart contract-based structure that pools user deposits and manages them collectively according to predefined rules. It is designed as a passive container for assets, where the underlying code determines how those assets are allocated, reinvested, or repositioned across different on-chain opportunities. The concept focuses on automated capital management rather than manual, individual decision-making by each depositor. Vaults typically expose a single deposit asset and issue a corresponding claim token that represents a user’s proportional share of the pooled funds.
In many implementations, a vault coordinates one or more strategies that interact with external protocols such as lending pools or decentralized exchanges. The vault itself holds the assets and enforces constraints like deposit and withdrawal logic, fee parameters, and accounting of gains or losses. It abstracts away the complexity of direct protocol interactions, while still keeping all operations transparent and verifiable on-chain. As a concept, a vault is protocol-agnostic and can be used by various DeFi systems to standardize how pooled capital is managed.
Context and Usage
Vaults became prominent in DeFi through platforms like Yearn Finance, where they serve as core building blocks for automated yield farming. In that context, a vault aggregates user funds and routes them into strategies that may involve lending pools, liquidity provision, or other yield-generating mechanisms. The vault’s accounting tracks how much value each participant is entitled to as strategies realize gains or incur losses. This allows users to hold a single vault share token while their underlying capital is dynamically reallocated across multiple positions.
Within the broader DeFi ecosystem, vaults are used as modular components that other applications can integrate or build upon. They can function as yield-bearing primitives, collateral sources, or managed treasuries for protocols and DAOs. The concept emphasizes separation of concerns: the vault handles custody, accounting, and access control, while strategies define how capital is deployed. This separation makes it easier to update or swap strategies without changing the core vault interface that users and integrated applications rely on.