Vault (DeFi)

A DeFi vault is a smart contract-based account that holds crypto assets and manages them according to a specific strategy. Instead of manually moving funds between protocols, users deposit tokens into the vault, and the vault follows programmed rules such as lending assets, providing liquidity, staking tokens, or compounding rewards. In return, users often receive a vault token that represents their share of the pooled assets and any gains or losses from the strategy.

Vaults matter because they make complex DeFi actions easier to access and can reduce the need for constant manual management. For example, a yield vault might collect rewards from a liquidity pool, sell or reinvest them, and add the proceeds back into the position to compound returns. This is similar to putting money into a managed fund, except the rules are executed by smart contracts and on-chain protocols. Vaults can still carry risks, including smart contract bugs, strategy losses, liquidity issues, and exposure to the underlying protocols they use.