A deep dive into the ERC-4626 Ecosystem
Standards in traditional technology are one of the most powerful catalysts. They drive interoperability, ecosystem development, and future innovation.
Crypto is no exception to this: ERC-20, ERC-721, ERC-4626. ERC standards are the condition for a successful composable and permissionless ecosystem.
ERC-4626 is one of the most exciting standards for Ethereum. As a standard for tokenized vaults, it lowers the integration effort for yield-bearing vaults that are powering many DeFi projects.
Beyond substantially decreasing integration costs, this standard natively creates a derivative asset, generating a new kind of liquidity independent from the underlying assets.
Reflecting on the power of standards, mStable realized that broad adoption is a prerequisite for it to become a game changer in DeFi. With early adopters of the standard, we’re building the 4626-Alliance, a fertile ground for 4626-builders to foster collaboration and push the standard.
In this blog post, we explore some of the vast ecosystems of DeFi projects building on the standard and what they have been up to.
Timeless Finance
Timeless is a yield market protocol that lets you boost, hedge, and trade yield. Instead of just parking your money into a classic yield farm, Timeless enables users to boost their yield, hedge against falling yield rates or speculate on yield rate changes.
Timeless supports yearn and ERC-4626 vaults and anyone can use their Factory to deploy new yield tokens and liquidity pools, while it previously released an open source repository of ERC-4626 wrappers for popular projects called Yield Daddy.
Yearn Finance
Yearn is a yield aggregator where users, protocols, and DAOs can deposit digital assets into various capital pools known as vaults and receive yield. The vaults help to socialize gas costs, automate yield generation and rebalancing processes, and shift capital when opportunities arise.
Yearn V3 uses ERC-4626 for their vaults, which means these deposits can be funnelled to other ERC-4626 vaults easily.
Maple Finance
Maple Finance offers under-collateralized loans to approved borrowers while taking advantage of the composability and efficiency of public blockchains. Maple offers borrowers transparent and efficient financing completed entirely on-chain while lenders benefit from a sustainable yield source through lending to diversified pools of crypto blue-chip managed by Pool Delegates.
Maple uses ERC-4626 for their xMPL contract and their RevenueDistributionToken to distribute protocol revenue to staked users with vesting. They are also working on ERC-4626 for Maple V2 LP tokens.
Balancer
Balancer is an automated portfolio manager, liquidity provider, and price sensor that empowers decentralized exchange and the automated portfolio management of tokens. Balancer uses ERC-4626 on their Linear pools, the base component of Boosted Pools to facilitate trades between two tokens at a known exchange rate with linear math. With ERC-4626, you can create a linear pool from any ERC-4626-compatible wrapped token, which then can be subsequently used to create a Phantom Stable pool and Boosted Pool in combination with any lending platform like Aave.
Aura Finance
Aura Finance is a protocol built on top of Balancer to provide maximum incentives to Balancer liquidity providers and BAL token holders through social aggregation of BAL deposits and Aura’s native token.
Aura pools support ERC-4626 for maximum composability. All gauge deposit pools are ERC-4626 vaults with the deposit asset being BPT.
Sommelier Finance
Sommelier is a DeFi protocol built on the Cosmos SDK with a bi-directional Ethereum bridge. This collection serves as a co-processor to Ethereum, by leveraging the cosmos chain to process strategies on Ethereum.
The team built a dynamic ERC-4626 vault that adapts lending strategies to always get the best yield for stablecoins on Aave.
Fei Protocol / Rari Capital Fuse
Fei Protocol helps other DAOs achieve deep liquidity in lending and exchange markets by deploying PCV and offering Liquidity-as-a-Service. With Rari Capital’s Fuse, an open lending and interest rate protocol, it deployed the Tribe Convex Pool, #156, utilizing ERC-4626 and other plug-ins to support Convex positions as collateral in Fuse.
Joey Santaro, the Co-Founder of Fei, is a co-author of EIP-4626. He built the repository that contains open-source ERC4626 infrastructure that can be used by solidity developers using EIP-4626, including ERC4626Router, and xERC4626.
Aztec Protocol
Aztec is a new and efficient technology bringing private transactions to Ethereum. They recently developed a native 4626 bridge for any ERC4626 compatible vault and the underlying assets. This bridge allows people to issue and redeem shares of any ERC4626 vault after the vault is listed in the contract, and also enables any protocol conforming to the ERC-4626 standard to be easily added to Aztec Connect.
Alchemix
Alchemix is an innovative, hybrid DeFi application that allows for the creation of yield-backed synthetic assets. With its unique ability to provide collateral that can also generate yield, Alchemix can offer a self-paying loan that has effectively no risk of liquidation. Alchemix is working on an ERC-4626 adapter for their contract so that they can use ERC-4626 vaults as new yield sources.
Element Finance
Element is an open-source protocol for fixed and variable yield markets. It lets users earn predictable returns on investments thanks to fixed rates over a predetermined period of time. in contrast to other protocols, they let the market forces dictate both fixed and variable rates.
They are currently developing ERC-4626 adapters for their V2 to enable new pools, and in parallel, they’re working with Aztec on integrating their ERC-4626 bridge.
Resonate Finance
Resonate is a Yield Futures Protocol developed by Revest Finance and built on top of Revest’s Financial NFT (FNFT) technology. It separates the principal and interest components of a position by issuing two FNFTs; one containing the principal and the other containing the rights to future interest on that principal. Resonate facilitates the commerce of the rights to future interest by matching issuers and purchasers.
Resonate will be supporting lending pools with ERC-4626 adapters and offering lenders new ways to receive fixed-rate returns. Resonate will launch in Q3 2022.
Senses Protocol
Sense is decentralized and permissionless infrastructure, where teams can build and develop new yield primitives for DeFi, such as fixed income tokens, yield tokens, and other custom re-divisions of existing tokens’ exposures.
With Sense, users can access fixed rate versions of existing variable yield tokens or make directional long/short bets on the future yields of existing yield-bearing assets.
They’re big fans of ERC-4626 and have built Sense around the standard for rapid integration.
Morpho Finance
Morpho is a peer-to-peer layer on top of lending pools like Compound or Aave. They’ve built a lending pool optimizer where rates are seamlessly improved for suppliers and borrowers while preserving the same liquidity and liquidation parameters.
In short, Morpho-Compound is an upgraded version of Compound, and Morpho-AAVE is an upgraded version of AAVE.
They just announced their ERC-4626 compatibility a few days ago with adapter contracts for one-click integrations for protocols that want to provide capital to Morpho.
Frax Finance
Frax is the first fractional stablecoin protocol.
frxETH project (ETH 2.0 liquid staking derivative) will be using ERC 4626
sfrxETH is an ERC-4626 compliant vault. sfrxETH is obtained by first approving the sfrxETH contract as a frxETH spender, and then calling mint() (mints a specific number of sfrxETH) or deposit() (deposits a specific amount of frxETH).
mStable
mStable is a secure and composable layer for yield with vaults built on ERC-4626. It aims to power the next generation of composable vault infrastructure with its Meta Vaults starting with a Convex-centric vault in mid-Q4.
mStable’s ERC-4626 Save and Convex strategies have pioneered gas-efficient, optimised yield strategies for depositors to earn and compound yield in a decentralised, secure manner.
Closing thoughts
The world of ERC-4626 has just emerged since the standard was introduced earlier this year.
A “Dual-layer assets” pattern, separating the process of vault underlying assets from the tokenized one, brings augmented capabilities to the worn-out “LEGO” in the DeFi-world
With these new Legos, what if you could:
- Design ERC-4626 vaults that take another existing ERC-4626 compliant vault and buy insurance coverage effectively being paid from the yield in real-time
- Create native money markets for any vault token unlocking leverage and secondary utilization
- Bridge and perform complex and frequent cross-chain rebalancing between multiple vaults
From ERC-4626 bridges to fixed-rate lending, yield aggregation, liquidity pools… the list goes on. mStable, among others, is extremely excited about the unlimited possibilities in this space.
