Yearn Finance Leads the Way on ERC-4626（The Yield-bearing token standard）

On Tuesday, Yearn Finance announced that the Tokenized Vault Standard (ERC-4626) has become available. According to Yearn Finance, a developer can build an app on top of one ERC-4626 vault, and it will be compatible with all other ERC-4626 tokens.

The company also mentioned that ERC-4626 would become the gold standard for any interest-bearing token, and Yearn Finance v3 would launch using ERC-4626.
A new Ethereum token standard, ERC-4626, is aiming at resolving the diverse design types for tokens used in decentralized Finance (DeFi):

-The Yearn.finance platform is a Decentralized Finance (DeFi) platform on which you can build products like aggregated liquidity, leveraged trading, and automated marketing tools.


Yearn Finance is the first major protocol to support the adoption of ERC-4620 publicly, creating credibility and encouraging others to explore it.

The fact that Yearn endorsed ERC-4626 over Twitter is a big deal, according to ERC-4626 co-author and Ape Framework creator Señor Doggo, because it signalled to other larger and more established teams the possibility of pursuing ERC-4626 in the future.

Ethereum Token Standard ERC-4626 is intended to streamline the various types of tokens that print money, such as yield-bearing tokens.

Several of decentralized Finance's biggest players have already adopted the novel standard – perhaps an indication of how fast the ecosystem is developing as Ethereum prepares for its upcoming "Merge" proof-of-stake upgrade."


DeFi developers used to write custom-made code to integrate yield-bearing tokens before the introduction of ERC-4626, "the tokenized vault standard," They spend their own money or project funds to audit this custom-made code for possible vulnerabilities.

Joey Santoro, the founder of Fei Protocol and co-author of ERC-4626, asserts that developers had a major headache with this. As yield-bearing tokens were not standardized, inefficiencies and insecurities spread throughout DeFi.


It enables people to access financial services and yield generation without a traditional mediator or intermediary. DeFi has $120.59 billion in total locked value on the Ethereum blockchain.


Yield-bearing tokens, such as Aave's Token, Compound's cToken, or Sushi's xToken, constitute de facto equity on a DeFi protocol as they represent contributions to the yield-generating activity.


Now is different

---

The ERC-4626 standard simplifies yield-bearing token development, enables easier token creation, and creates a shared interface for tokens held in vaults and smart contracts that tap into asset tokens for liquidity.

As Santoros pointed out, the novel standard is applicable anywhere a user enters a token and takes it out.

Also, DeFi applications don't require developers to write new code to create a custom vault every time.

As with ERC-20 tokens, the standard that launched the infamous initial coin offering boom in 2017, applications built on an ERC-4626 vault will work for any ERC-4626 token.
The developers of DeFi believe that improving composability could unleash a whole new wave of financial innovation.


Yearn leads DeFi with ERC-4626

---

On Tuesday, Yearn, one of DeFi's largest stakeholders, wrote on Twitter that "the Great Vault Standardization is just beginning" because "ERC-4626 will be the gold standard for all sorts of interest-bearing tokens."

Santoro said that Yearn's Twitter announcement was a way to put its flag down and say that it would drive the adoption of the universal standard.

According to Yearn, despite protocols not adopting ERC-4626, ERC-4626 will become ubiquitous because Yearn will drive adoption.

Assuming that other major DeFi applications such as Aave and Compound do not build on ERC-4626, Yearn can still facilitate the creation of a wrapper contract so developers can create a token that is compatible with Aave and Compound's yield-bearing token.

By using these wrapper vaults, Yearn can enforce adoption in a backward-compatible manner.

Yearn described this by saying, "Yearn V3 + ERC-4626 = INEVITABLE."


ERC-4626 IMPLEMENTATION

---

As Santori pointed out, future developers should build directly with the standard due to the extra gas and steps involved in wrapping.

It doesn't matter how it's created; ERC-4626 is a game-changer for DeFi developers helping to launch various lending markets, yield aggregators, and tokens that are intrinsically interest-bearing.

Santoro said developers across the DeFi ecosystem are already developing on ERC-4626, not just Yearn. For example, Alchemix, Balancer, Rari Capital, Fei Protocol, and Open Zeppelin have all begun implementing the standard, first proposed in January and finalized in March.

Santoro and Senor Doggo claim that reports stating ERC-4626 will be implemented at the next fork upgrade for Ethereum are false. ERC-4626 has been finalized, and people have already started using it.

Due to the lack of a hard fork, it is up to developers to implement ERC-4626 on their own time.



Author: Gate.io Observer: M. Olatunji
* This article represents only the views of the observers and does not constitute any investment suggestions.
*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.