Thread by @dariuskohsg

1/13 A short thread on token standard #ERC4626 of #Ethereum blockchain discussing the current limitations of existing applications, use cases and benefits.

2/13 ERC-4626 is the new ERC standard for yield-bearing token development, developed by Joey-Santoro and 2 other developers at #feiprotocol. Its released on 3/11/2022.

3/13 Yield-bearing token mostly represents assets locked in DeFi protocols, as you know, DeFi’s TVL is now over $100B, so Yield-bearing token’s market cap is huge and widely used in Protocols, some examples of Yield-bearing tokens include cDAI, aLINK, yETH.

4/13 Why do we need to standardize?
1) An example is Yearn Finance.

5/13 Currently, there are dozens of yToken on Yearn Finance, for each such yToken, the devs have to write a new strategy for that yToken, and at the same time have to spend more money and time to audit, because if one strategy is wrong, it will lead to massive losses.

6/13 2) If a dev wants to build an app that integrates both Aave, Compound and Yearn Finance, he would need to write a bunch of different adapters in order to integrate with those contracts because there is no standard way to do so.

ERC-4626 is the solution.

7/13 It lays out a standard interface that every tokenised vault should adhere to. So firstly, every tokenized vault should be an ERC-20 token by default.

8/13 On top of that, ERC-4626 adds a series of other methods that can be called on this contract so for e.g. (see image below) you have a totalAssets method which will show the total amount of the underlying token managed by the vault.

9/13 You may find the entire list of standardization on eips.ethereum.org/EIPS/eip-4626

In a nutshell, applications built on top of ERC-4626 vaults work with all yield-bearing ERC-4626 vaults, making integration and innovation much easier.

10/13 How is ERC-4626 going to benefit the broader DeFi ecosystem:
1. Standardized trading strategies i.e. only the right strategies can generate ERC-4626 tokens.
2. Protocols do not need to spend time and money to audit, because the strategies in ERC-4626 are secure by default.

11/13 3. Time taken to integrate yield-bearing tokens into other platforms is drastically reduced.
4. Easier asset management for users since they have been grouped into one.

12/13 5. Higher capital efficiency, composability and interoperability since yield-bearing tokens can be integrated into other platforms in an easier fashion and an app that is built on top of one ERC-4626 vault will also work for other ERC-4626 tokens.

Conclusion.

13/13 ERC-4626 is an important lego in the DeFi space that all yield bearing tokens in the DeFi space should adopt.