ERC-4626

Before ERC-4626, every yield vault on Ethereum spoke its own dialect. One named its functions one way, another calculated share values differently, and every lending market or aggregator that wanted to support them had to write and audit new code for each. ERC-4626, finalized in 2022, gave vaults a shared language.

What the standard defines

An ERC-4626 vault holds one underlying asset, such as a dollar token, and issues shares that are themselves ERC-20 tokens. The standard fixes the functions every vault must offer:

• deposit and mint, to put the asset in and receive shares
• withdraw and redeem, to take the asset out by burning shares
• totalAssets, which reports everything the vault holds or is owed
• convertToShares and convertToAssets, which translate between the two at the current rate
• preview and max functions, which show what a transaction would do, and how large it can be, before it is sent

How a share's value grows

The exchange rate is total assets divided by total shares. Suppose a vault holds 1,000,000 dollar tokens and has issued 1,000,000 shares, so one share is worth one token. The vault's strategy earns 20,000 tokens. Total assets rise to 1,020,000 while the share count stays the same, so each share is now worth 1.02 tokens. A new holder who adds 1,020 tokens receives 1,000 shares. Nobody's share balance changed, yet everyone who held shares before the gain is better off. This is the non-rebasing design used by most vault tokens.

Why a standard matters

Because every compliant vault answers the same questions in the same way, one integration works for all of them. A lending market can accept vault shares as collateral by reading convertToAssets, a yield tokenization protocol can split them into principal and yield parts, and wallets can show a holder's value in the underlying asset. This is composability in practice: a standard turns one product into a building block for others. Many yield-bearing dollar tokens are built on it.

Risks and limits

A standard interface says nothing about what the vault does with the assets. Two ERC-4626 vaults can look identical to a wallet and carry very different risks. Known pitfalls include:

• Share price manipulation. In a new, nearly empty vault, an attacker can donate assets to inflate the share price so the next user's shares round down to almost nothing, the so-called inflation attack. Careful vaults defend against it with virtual shares or an initial seed.
• Rounding. The standard requires rounding in the vault's favour, which protects existing holders but can surprise integrators.
• Reading share values as prices. If a vault's total assets can be moved within one transaction, a lending market that trusts convertToAssets directly can be exploited; a robust oracle is safer.
• Exit limits. A vault can cap or delay withdrawals, which the max functions report.

An audit of the vault's code tells you more than its compliance with the interface. Check both, and read what the vault actually holds.

strUSD is an ERC-4626 vault token. Its underlying asset is trUSD, Tori Finance's synthetic dollar, and a strUSD share is a claim on trUSD held in the vault. The vault accrues the strategy's variable yield, so the trUSD value of each share changes over time while a holder's share balance stays the same. Because strUSD follows the standard, protocols that already support ERC-4626 vaults can work with it.