How to Use ERC-4626 with Your Smart Contract

Overview

If you've built protocols or tools that interact with multiple DeFi tokens, you've likely faced the challenge of inconsistent code logic across protocols. The ERC-4626 Tokenized Vault Standard solves this by unifying yield-bearing vault interactions under a single interface. Major protocols like Yearn V3 already use this standard.

This guide covers:

• How yield-bearing vaults work.
• Key features of the ERC-4626 standard.
• Steps to build your own ERC-4626 vault.

What You’ll Learn

✅ Yield-bearing vault mechanics
✅ ERC-4626 standard components
✅ Deploying a vault contract

Prerequisites

• Basic DeFi knowledge.
• An Ethereum wallet (e.g., MetaMask) with Sepolia test ETH (get test ETH).
• Familiarity with Remix IDE.
• Experience creating ERC-20 tokens.

Yield-Bearing Vaults Explained

Yield-bearing vaults are DeFi smart contracts that:

1. Pool user deposits (e.g., USDC, ETH).
2. Generate yield via strategies (lending, liquidity provision, etc.).
3. Issue tokens (e.g., vUSDC) representing a user’s share.

Examples:

• Compound’s cUSDC.
• Lido’s stETH.

Benefits:

• Automated yield optimization.
• Reduced complexity vs. manual farming.

Challenges Without ERC-4626

Integrating multiple protocols requires:

• Researching each protocol’s yield model.
• Custom adapters for each token (e.g., cUSDC, stETH).
• Increased audit costs and vulnerability risks.

👉 ERC-4626 standardizes this process.

ERC-4626: The Tokenized Vault Standard

Key Features:

• Deposit/redeem functions.
• Share conversion rates.
• Vault balance tracking.

Extends ERC-20 with:

• deposit(): Mint shares for assets.
• redeem(): Burn shares for assets + yield.

Build an ERC-4626 Vault

Step 1: Create a Sepolia Endpoint

1. Sign up for QuickNode.
2. Deploy an Ethereum Sepolia endpoint.
3. Copy the HTTP Provider URL.

Step 2: Configure MetaMask

• Network Name: Sepolia QuickNode.
• RPC URL: Paste your QuickNode endpoint.
• Chain ID: 11155111.

Step 3: Deploy the Vault Contract

Code Highlights:

// TokenVault.sol  
contract TokenVault is ERC4626 {  
    mapping(address => uint256) public shareHolder;  

    constructor(ERC20 _asset, string memory _name, string memory _symbol)  
        ERC4626(_asset, _name, _symbol) {}  

    function _deposit(uint _assets) public {  
        deposit(_assets, msg.sender);  
        shareHolder[msg.sender] += _assets;  
    }  

    function _withdraw(uint _shares, address _receiver) public {  
        uint256 assets = _shares + (10 * _shares) / 100; // 10% yield  
        redeem(assets, _receiver, msg.sender);  
        shareHolder[msg.sender] -= _shares;  
    }  
}  

Deployment Steps:

1. Deploy an ERC-20 asset token (e.g., USDC).
2. Mint test tokens (USDC.mint()).
3. Approve the vault to spend USDC (USDC.approve()).

4. Deploy the TokenVault with:

   • Asset token address.
   • Vault name/symbol (e.g., "vUSDC").

Testing the Vault

1. Deposit: Call _deposit(10000) → Receives 10000 vUSDC.

2. Check Balances:

   • totalAssets(): Vault’s USDC balance.
   • totalAssetsOfUser(): User’s USDC balance.
3. Withdraw: Call _withdraw(1000, user) → Receives 1100 USDC (10% yield).

FAQ

Q1: What’s the advantage of ERC-4626?

A: Standardizes yield vaults, reducing integration overhead.

Q2: Can I use existing ERC-20 tokens?

A: Yes! Pass the token address to the vault constructor.

Q3: How is yield calculated?

A: In this example, yield is fixed at 10%. Real vaults use dynamic strategies.

Conclusion

By adopting ERC-4626, developers can:

• Streamline multi-protocol integrations.
• Reduce custom code and auditing costs.
• Focus on building innovative DeFi products.

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