Vault token

Mutual funds solved an old problem: how can many people own one portfolio without each owning a slice of every bond in it? They issue units, and each unit's price follows the portfolio. A vault token does the same thing onchain. You hand an asset to a vault contract and receive shares, and the shares are your claim on the pool.

Shares, not balances

A vault token measures ownership, not value. If you own 1 share out of 100, you own a hundredth of whatever the vault holds. When the vault earns, the pool grows and your hundredth is worth more, while your wallet still shows the same number of shares. To see their value, multiply by the share price, which the vault calculates as its total assets divided by the shares outstanding. Most yield-bearing dollar tokens work exactly this way.

Rebasing vs. non-rebasing

There are two ways to deliver a return in token form:

• Rebasing tokens change your balance. Lido's stETH updates holders' balances daily and Aave's aTokens grow continuously, so one token stays near one unit of the underlying asset and income shows up as more tokens.
• Non-rebasing tokens keep your balance fixed and raise the value of each token. wstETH is the non-rebasing wrapper for stETH for exactly this reason, and vaults built on ERC-4626 work this way.

Non-rebasing designs are easier for other software. A pool or lending market that holds a rebasing token can lose track of balances that change on their own, while a fixed balance with a rising price fits the way most DeFi contracts already account for tokens.

A simple example

You place 5,000 dollar tokens in a vault when one share is worth exactly one token, and you receive 5,000 shares. A year later the vault's strategy has earned and the share price is 1.04 tokens. You still have 5,000 shares, now worth 5,200 tokens. With a rebasing version you would instead see about 5,200 tokens in your wallet, each worth about one. The economics are the same; only the bookkeeping differs.

What a vault token does not tell you

The token itself is a receipt. Its value depends on what the vault does with the assets: lend them in a money market, run a hedged strategy, or something else. Before holding one, look at the strategy, the audits of the vault contract, who can change the vault's settings, and whether exits can be limited or delayed.

Risks and limits

The share price can fall if the strategy loses money, so a vault token is not a savings balance. Its market price on an exchange can differ from its share price during stress. Some vaults let a manager or curator change the strategy, which adds governance risk. And using a vault token inside another protocol stacks risks: the second protocol's contracts, prices and liquidation rules apply on top of the vault's own. That trade-off sits at the heart of composability.

strUSD is Tori Finance's vault token. It follows the ERC-4626 standard, its underlying asset is trUSD, and a strUSD share is a claim on trUSD held in the vault. As the strategy earns, each share's trUSD value changes while the holder's number of shares stays the same. The yield it accrues is variable and never guaranteed.