New Standard Promises to Clean Up 'Mess' in Yield-Bearing Tokens

The Fresh Approach Could Support All Yield-Bearing Tokens

By: Samuel Haig Loading...

New Standard Promises to Clean Up 'Mess' in Yield-Bearing Tokens

The mess in yield-bearing tokens is about to be cleaned up. At least, that’s the plan.

ERC-4626, a new token standard for yield-generating vaults on Ethereum, has been finalized.

It is designed to make it easy for yield-bearing tokens, such as Aave’s aTokens or SushiSwap’s xSUSHI, to be integrated with DeFi protocols. The standard was first proposed in December by Fei protocol co-founder, Joey Santoro.

Money Legos

The token standard will enable dapps supporting a single ERC-4626-based vault to support all yield-bearing tokens built to the same specifications. Without the standard, protocols seeking to integrate yield-bearing assets must develop custom code for each individual token. This requires expensive code audits, and also risks creating new security vulnerabilities.

The token standard is expected to accelerate the creation of so-called ‘money legos’ within DeFi. Open-source development within DeFi enables teams to build upon existing products, protocols, and standards to design new innovations by leveraging interoperability and composability.

Yearn Finance described the existing state of yield-bearing tokens as “a mess” in an April 6 Twitter thread.

“To build a single app on top of DeFi’s yield-bearing tokens, you have to write dozens of complex, error-prone adapters that can handle each unique variation. ERC-4626 makes that a thing of the past,” said Yearn.

“Imagine if the Uniswap devs had to rewrite and audit the exchange contracts each time they wanted to deploy a new pair,” Jet Jadeja, ERC-4626 co-author and developer at Rari Capital, told The Defiant in January.

Token Standard

Yearn said that it is working to implement the standard in its v3 vaults. Last month, Santoro noted that Balancer, Alchemix, Maple Finance, OpenZeppelin, and Midas Capita1, among other teams, are also working toward integrating the new token standard.

Santoro tweeted that the finalization of ERC-4626 marks the best day of their life.

The progress of ERC-4626 has received praise from the crypto community on Twitter. 0xevolve, formerly of Agora Market, said, “Let’s push the space forward together. Composability is key to innovation in DeFi.”

Dtsetso emphasized that the new standard will bolster permissionless composability without compromising security. “DeFi innovation will only get faster,” they added.