Following the successful deployment of 25 previous Ethereum Request for Comments (ERC) standards — including the industry recognized ERC-20 for fungible tokens, ERC-721 for nonfungible tokens (NFTs), and the single smart contract multi-token ERC-1155 — the newly passed ERC-4626 is gaining traction within the Ethereum community due to its purported yield-bearing benefits.
Referred to as the “tokenized vault standard,” ERC-4626 is set to be implemented at the next Ethereum fork upgrade following approval by the developers within Ethereum’s governance procedure.
Serving as an addition to ERC-20, and considering the utilization of the under-review EIP-2612 for the approval shares user experience, the ERC-4626 standard is expected to enact widescale benefits across Ethereum’s decentralized finance (DeFi) ecosystem, enhancing the composability and accessibility of yield-bearing vaults across multiple networks.
As an application programming interface, much of the implementation will occur behind the scenes within the network’s operation and, therefore, will not be particularly visible on the user-end’s dashboard but will be immensely valuable for their participating experience.
One of the primary attractions for the retail market in interacting with DeFi protocols is their positively disproportionate yield generation compared with traditional banking bond accounts and savings offerings.
Yield-bearing assets such as SushiSwap’s xSushi, Aave’s aToken or Yearn.finance’s yToken enable users to stake the network’s native tokens for a wrapped version, offering benefits from both the acquired liquidity and interest earned.
However, as Yearn.finance succinctly pointed out, “To build a single app on top of DeFi’s yield-bearing tokens, you have to write dozens of complex, error-prone adapters that can handle each unique variation,” as well as that if you “build an app on top of one ERC-4626 vault, [...] it will work for all other ERC-4626 tokens.”
5/ Yearn V3 + ERC-4626 = inevitable— yearn.finance (@iearnfinance) April 5, 2022
Contributors are already working hard implementing the standard for Yearn’s V3 vaults
So are devs at @AlchemixFi, @balancer, @RariCapital, @feiprotocol, @OpenZeppelin and elsewhere
Perhaps one day, we’ll even see a Erc4626 tab on @etherscan
The concept for ERC-4626 was initially pitched on Dec. 22 as an Ethereum Improvement Proposal (EIP) by five authors led by the founder of Fei Protocol, Joey Santoro.
According to an anecdotal story from co-author “T11s,” the 4626 number was birthed during a workout, with T11s noting that the melodic rhyming pattern sounded more appropriate for the title of their invention than the more monotonous 4700, for instance.
Fundamentally viewed as a protocol standard designed to optimize and unify the technical parameters of yield-bearing vaults, the proposition swiftly sparked discussions, suggestions and rebuttals on open-source development platforms Github and Ethereum Magicians and on Crypto Twitter, with a largely positive consensus noted throughout the community.
One responder named “Albertocuestacanada” highlighted a concern with the potential impact of language regarding the calculateShares required to equal sharesAmount section, arguing that this would prevent vaults from implementing deposit or withdrawing fees. Santoro soon revised this section “in favor of a better invariant related to it returning the same value as a mint/deposit call in the same transaction.”
The ERC-4626 Tokenized Vault Standard is ready for final review— Joey ’s ERC-4626 (@joey__santoro) January 12, 2022
Get your giga chad brains churning on how this standard will revolutionize DeFi
Be sure to share any proposed changes on the thread: https://t.co/ArchwpUNn4
Here is a summary of the proposed design