Crypto Vaults Explained: How DeFi Yield Vaults Work

A crypto vault, in DeFi, is a smart contract that pools deposits of one asset, runs a yield strategy with them, and gives each depositor a share token whose value tracks their slice of the pool. You deposit USDC or ETH, receive vault shares, and the share price rises (or falls) as the strategy earns or loses money. You don't claim rewards or rebalance anything yourself: the vault, its code and the people or bots that run it do that work.

The word "vault" is used for other things too, so it is worth separating them first. Exchanges have used it for security features: Coinbase launched a "Vault" account in 2014 with a 48-hour withdrawal delay and optional multi-person approvals, essentially a savings account with extra friction. Custodians and wallet providers also call their cold-storage products vaults. Neither earns yield on its own. This guide is about the third meaning: DeFi yield vaults, how they work, how their share price maths works, what they charge, and how to judge one before you deposit.

What is a DeFi vault?

A DeFi vault is a pooled, single-asset investment product that lives on-chain. Everyone in a given vault deposits the same token (the "underlying" or "asset"), the vault deploys that money into one or more strategies, and the returns are shared pro rata through the share token.

Three things make a vault different from simply using a protocol yourself:

• Pooling. Gas costs, rebalancing and reward harvesting are paid once for the whole pool rather than by each user.
• Delegated management. Someone, or some code, decides where the money goes. That might be a fixed on-chain strategy, a risk "curator" choosing which lending markets to supply, or a professional manager trading off-chain.
• A share token. Your position is a transferable token rather than an entry in an account. On many chains it can be used elsewhere, for example as collateral in a lending market.

"Yield vault", "DeFi vault" and "crypto vault app" all describe the same idea. A yield aggregator is usually a platform that runs many vaults; a vault curator is the party that sets the risk policy for one.

Anatomy of a vault: deposit, shares, strategy, harvest, fees

Almost every yield vault, on any chain, has the same five moving parts.

1. Deposit. You send the underlying asset to the vault contract. Some vaults accept only that asset; others offer a "zap" that swaps your token into it first, usually for a small extra fee.
2. Share (receipt) token. The vault mints shares to you at the current share price. Beefy calls these mooTokens and describes them as "an interest-bearing, tokenized proof of deposit"; Yearn's are yvTokens; Ember's carry an "e" prefix such as eEARN. Your number of shares normally stays fixed. What changes is how much underlying each share is worth.
3. Strategy. The code or manager that puts the pooled assets to work: supplying to lending markets, providing liquidity on a DEX, staking, running a basis trade, or buying tokenised credit.
4. Harvest and compound. Many strategies earn reward tokens that must be claimed, sold and reinvested. Beefy says its vaults are "normally harvested multiple times daily", with profits reinvested automatically. Lending-only vaults often need no harvest at all, because interest accrues directly to the supplied balance.
5. Fees. Usually a performance fee on profits, sometimes a management fee on assets, and occasionally deposit or withdrawal fees. Most vaults take fees by adjusting the share price or minting extra shares to the fee recipient, rather than by moving money out of your wallet.

The number tying these together is the vault's net asset value (NAV): everything the vault owns, minus everything it owes. The share price is simply NAV divided by the number of shares in existence.

ERC-4626: the tokenised vault standard

On Ethereum and other EVM chains, most modern vaults follow ERC-4626, "Tokenized Vaults". It was created on 22 December 2021 and has Final status. Before it existed, every aggregator wrote its own vault interface, so any app that wanted to integrate ten vaults needed ten adapters.

ERC-4626 standardises the interface around one underlying ERC-20 token and its shares: deposit and mint to enter, withdraw and redeem to exit, totalAssets to report what the vault manages, and convertToShares, convertToAssets and preview functions to quote the exchange rate before you act. maxDeposit and maxWithdraw tell integrators how much the vault will currently accept or release.

Two details in the standard matter for users. First, rounding must favour the vault: when you deposit or redeem, any rounding goes against you by a tiny amount, so one user can't drain others through rounding errors. Second, the EIP warns that the preview functions can be manipulated by on-chain conditions and should not be used as price oracles, and that a malicious contract can implement the interface without following the rules. "ERC-4626 compliant" means the plumbing is standard, not that the strategy is safe.

Yearn's V3 vaults are built to interoperate through ERC-4626, and Morpho's Vault V2 is ERC-4626 and ERC-2612 compliant. Sui uses the Move language rather than the EVM, so ERC-4626 does not apply directly, but Sui vaults use the same share-price model. Ember, for example, describes its fee mechanism as "following ERC-4626 principles".

How vault share price maths works: a worked example

The core rule is short:

Share price = NAV ÷ total shares. New deposits get shares at the current price, and withdrawals are paid at the current price.

Here is a simple USDC vault over three steps. The numbers are illustrative.

What the example shows:

• Bob doesn't take Alice's earlier profit. Because he buys in at 1.05, the first 5% stays with Alice. That is the whole point of share accounting.
• Both earn the same percentage afterwards. Alice's 1,000 shares end at about 1,068.9 USDC, Bob's 2,000 at about 2,137.8 USDC. Each gained roughly 1.8% net from the second step.
• The fee shows up as dilution, not a deduction. The fee recipient's 5.89 new shares are worth 5.89 × 1.0689 ≈ 6.30 USDC, exactly 10% of the 63 USDC gain. No one's share count fell; the price per share just rose less.
• Losses work the same way. If the strategy lost 3% instead, NAV would drop and every share would be worth 3% less. Nobody is "liquidated" individually; everyone shares the loss.

This model has one known weak point. If a brand-new, nearly empty vault lets anyone "donate" assets directly to it, an attacker can inflate the share price so that the next depositor's shares round down to zero. Euler's EulerEarn documentation, for instance, only accepts strategy vaults with "first depositor and stealth donation protection" for this reason. Well-built vaults defend against it with virtual shares, seeded initial deposits or both.

Types of crypto vaults

Vaults differ mainly in who decides where the money goes and where the strategy runs.

Auto-compounders

The oldest type. Yearn popularised the idea; Beefy runs vaults across many chains. The strategy is mechanical: farm, harvest, swap rewards into the underlying, redeposit. Returns depend heavily on the price of reward tokens, which is why advertised APYs on these vaults can collapse when emissions end. See APY vs APR for why compounded figures look larger.

Curated lending vaults

Here the vault supplies one asset, such as USDC, to a set of isolated lending markets. A curator decides which markets are allowed and how much each may receive; allocators move funds within those limits. In Morpho's Vault V2, the Curator manages adapters, caps and fees, harmful changes sit behind configurable timelocks of 0 to 3 weeks, and a Sentinel can reduce risk immediately. EulerEarn, a fork of the earlier Morpho vault design, has owner, curator, guardian and allocator roles. The yield is borrower interest, and the risk is that a curator allows a market whose collateral later turns out to be bad.

Managed and off-chain strategy vaults

Some strategies can't run entirely in a smart contract: basis trades on centralised exchanges, tokenised funds, private credit. Managed vaults hold deposits on-chain, let a named manager deploy them, and update the share price from reported performance. Ember's documentation describes this directly: strategy performance is tracked off-chain, and at set intervals the curator's operator updates the vault rate on-chain with fees already included. You are trusting the manager's reporting and the counterparties behind it, not just code.

Leverage and loop vaults

A loop vault deposits a yield-bearing asset as collateral, borrows a cheaper asset against it, converts the loan into more collateral, and repeats until it reaches a target leverage. It earns the spread between the collateral's yield and the borrow rate, multiplied by the leverage. The DeFi looping guide covers the maths in detail. The vault manages the health factor for you, but liquidation risk doesn't disappear; it is pooled.

LP manager vaults

Concentrated-liquidity DEXs pay fees only while the price sits inside your chosen range. LP manager vaults rebalance that range automatically. They still carry impermanent loss, and frequent rebalancing can lock it in (see our AMM explainer).

On-chain vs off-chain strategy vaults

The biggest single question about any vault is whether you can see what it holds.

• Fully on-chain vaults keep every position in smart contracts. You, or a dashboard, can check holdings, debt and share price at any block. The risks are code bugs, oracle failures and the protocols the vault depends on.
• Off-chain or hybrid vaults send some funds to exchanges, custodians, fund administrators or trading desks. The share price is only as accurate as the latest report, which may be updated daily, weekly or less often. One Ember vault's description, for example, notes that its NAV is updated "per the update from NAVC, the fund administrator, twice per month". The upside is access to strategies DeFi can't run natively; the downside is that a problem can stay invisible until the next report.

Neither is automatically better, but off-chain vaults need extra checks: who the manager is, who holds the assets, and how often NAV is verified.

Vault fees and withdrawal terms

Management vs performance fees

Vault fees come in four common forms.

• Performance fee: a cut of profits only, typically taken at harvest or when the share price reaches a new high. Yearn notes that vaults deployed through its factory charge 10% rather than 20%, and that fees became dynamic rather than a fixed "2 and 20". Morpho's Vault V2 allows up to 50% performance and up to 5% management at the contract level, which is a ceiling, not a typical rate.
• Management fee: an annual percentage of assets, charged whether or not the vault earns anything. Yearn takes it by minting new vault shares, diluting depositors.
• Deposit and withdrawal fees: one-off charges. Beefy says its withdrawal fees exist mainly "to prevent possible exploits from bad-faith actors" and stay in the vault for remaining depositors.
• Hidden costs: swap slippage on harvests, rebalancing costs and gas. These don't appear in the fee table but still come out of NAV.

A quick comparison on a 10,000 USDC deposit with a 5% gross annual return (500 USDC):

• A 10% performance fee costs 50 USDC. You keep 450, or 4.5%.
• A 2% management fee plus a 20% performance fee costs 200 USDC plus 20% of the remaining 300, so 260 USDC in total. You keep 240, or 2.4%.
• In a flat year, the first vault costs you nothing; the second still costs 200 USDC.

Management fees matter most on low-yield strategies, which is exactly where stablecoin vaults sit. Look for a high-water mark too: it means the performance fee is only charged on new highs, so you don't pay twice for recovering an earlier loss.

Withdrawals: instant vs queued

"Can I get out, and how fast?" is the question most people skip before depositing.

• Instant withdrawals work when the vault keeps assets that can be released in one transaction, such as supplied lending balances with spare liquidity. Even then, if a lending market is fully borrowed, the vault can only return what is available. Our utilisation rate guide explains why 100% utilisation means suppliers wait.
• Queued or epoch-based withdrawals are standard for managed and leveraged vaults. You submit a request, the manager or a keeper unwinds the matching slice of the strategy, and you claim later. Ember's public vault API listed 27 vaults on 12 October 2026 with withdrawal periods from 0 to 14 days (Ember vaults API); its eEARN vault showed 3 days.

Queues exist for a fair reason: if a vault paid leavers out of new deposits or idle cash, the people who stay would end up holding the illiquid or riskiest part. The trade-off is that in a stress event you can't exit faster than the queue. Check whether the amount you receive is fixed when you request, or set at a later price.

How to evaluate a crypto vault: a checklist

Before depositing, work through these questions. Our general guide to checking whether a DeFi protocol is safe goes deeper on several of them.

1. Strategy transparency. Can you explain in one sentence where the yield comes from? If the answer is "the manager's strategy", find out what it actually holds. Yield with no clear source is the biggest warning sign.
2. Audits. Which contracts were audited, by whom, and does the audited version match what is deployed? An audit of the vault doesn't cover the protocols it deposits into.
3. TVL history. Look at DefiLlama for how long the vault has existed and how its deposits behaved during past sell-offs. Young vaults with sudden inflows deserve caution.
4. Curator or manager. Who sets the risk policy, what is their track record, and do they have money in the vault?
5. Withdrawal terms. Instant or queued? How long is the window, is there a fee, and can withdrawals be paused?
6. Oracles and pricing. How does the vault value its holdings: a market price oracle, an exchange rate reported by another protocol, or a manager's report?
7. Admin keys and timelocks. Who can upgrade the contract, change fees, add strategies or pause it? Is that a single key or a multisig, and do changes take effect immediately or after a timelock you can react to?
8. Dependencies. List every protocol and token the vault touches. Its risk is the sum of all of them.
9. Fees in full. Management, performance, entry, exit and the cost of unwinding.

Risks and notable vault failures

Every vault carries the risks of its strategy plus a few of its own:

• Smart contract risk in the vault and in every protocol it uses.
• Strategy and counterparty risk, especially where funds leave the chain.
• Liquidation risk in leveraged vaults. See how DeFi liquidations work.
• Depeg risk when the vault holds a stablecoin or a yield-bearing dollar token. See stablecoin depegs explained.
• Liquidity risk: queues lengthen exactly when everyone wants out.
• Composability risk: vault shares used as collateral elsewhere spread one vault's problem to other protocols.

The clearest recent example of the last two is Stream Finance. On 4 November 2025, Decrypt reported that Stream had disclosed an external fund manager overseeing its funds had lost about $93 million. Stream suspended all deposits and withdrawals and engaged a law firm to investigate, and its staked dollar token xUSD fell about 77% from its peg. Because xUSD had been used as collateral elsewhere, the damage spread. Elixir, which had lent to Stream against xUSD, announced it would wind down its deUSD stablecoin; reports on 6 November 2025 said Stream owed Elixir $68 million and held around $75 million of deUSD. Elixir planned to let deUSD holders redeem for USDC through a claims process.

The general lessons: a share token is only as good as the assets behind it, off-chain losses can stay hidden until disclosed, and a token accepted as collateral in many places can carry one failure across the ecosystem.

Crypto vaults on Sui

Sui has a smaller but growing vault scene. TVL figures below are from DefiLlama as of 12 October 2026.

• Ember tokenises managed vaults across Sui and several EVM chains. DefiLlama shows about $118 million in total, of which about $34.7 million is on Sui. Its vaults range from Sui DeFi strategies to tokenised credit and funds run by third-party managers. Our Ember Protocol guide covers it in detail.
• Volo Vault, part of the NAVI group, about $4.3 million.
• Haedal's lending vault, about $6.5 million.
• AlphaFi, an aggregator, about $2.9 million.
• Kai Finance, listed as leveraged farming, about $0.9 million.

For scale, on the same date DefiLlama showed Morpho at about $11.27 billion, Euler at about $302 million, Yearn at about $201 million and Beefy at about $112 million. DefiLlama's default TVL for lending protocols counts deposits minus borrows, so these are not directly comparable with gross deposit figures you may see elsewhere. For a wider comparison, see our best yield aggregators in 2026 and best DeFi platforms on Sui.

Where JewelSwap fits

JewelSwap runs two vault-style products on Sui, at sui.jewelswap.io.

• Auto-compounding yield farms built on Scallop and Cetus. They work like the auto-compounders above: the protocol harvests and reinvests rewards so you don't have to. The Scallop farm guide explains the mechanics.
• Ember Loop (jeLOOP), a JewelSwap Labs loop vault in public beta since 11 October 2026. You deposit USDC and receive jeLOOP. The vault buys Ember's eEARN, uses it as collateral on Suilend, and borrows USDC to buy more eEARN, targeting about 4.5x leverage (about 77.5% LTV) using a flash loan. A keeper runs every 10 minutes. Withdrawals are queue-only tickets, usually 10 to 30 minutes. Fees are 0.45% on entry, 1% on withdrawal and 10% of performance above a high-water mark, with hard ceilings of 1%, 1% and 20%. Admin and upgrade rights sit with JewelSwap's 3-of-5 multisig, and fee changes take effect immediately, without a timelock.

Ember Loop is unaudited, and leverage multiplies losses as well as gains: if eEARN loses value or borrowing costs more than eEARN earns, the jeLOOP price falls. The app shows live yield estimates rather than fixed rates. Read the Ember Loop docs before using the Ember Loop app, and only deposit what you can afford to lose. For the full breakdown, see Ember Loop: leveraged stablecoin yield on Sui.

Frequently asked questions

What is a crypto vault?

In DeFi, a crypto vault is a smart contract that pools deposits of one asset, runs a yield strategy with them and issues share tokens whose value tracks each depositor's portion. The word is also used for exchange security features and custody products, which hold assets but don't earn yield.

Are DeFi vaults safe?

No vault is risk-free. You take on smart contract risk, the risks of every protocol the vault uses, and, for managed vaults, the manager's and counterparties' risk. Audits, a long track record, transparent holdings, timelocked admin changes and clear withdrawal terms reduce risk but don't remove it.

How do vaults make money?

From the underlying strategy: borrower interest, trading fees, staking rewards, incentive tokens, funding-rate trades or real-world credit. The vault adds convenience and pooling. If you can't identify where the yield comes from, treat that as a warning sign.

What is ERC-4626?

ERC-4626 is the Ethereum standard for tokenised vaults. It defines common functions for depositing, withdrawing and converting between assets and shares, so wallets and apps can integrate any compliant vault the same way. It standardises the interface, not the safety of the strategy.

Why does my vault token balance stay the same while I earn?

Most vaults pay yield by raising the share price rather than giving you more tokens. Your share count stays fixed and each share is worth more of the underlying asset over time. If the strategy loses money, the share price falls instead.

Why can't I withdraw instantly from some vaults?

Managed, off-chain and leveraged strategies have to unwind positions to pay you, which takes time. Queued withdrawals make sure leavers don't take liquid assets at the expense of people who stay. Check the queue length, any fee, and whether your payout is fixed when you request it.

What's the difference between a vault and a yield aggregator?

A vault is a single pooled strategy for one asset. A yield aggregator is usually a platform that runs many vaults and may move funds between strategies to chase the best rate. Yearn and Beefy are aggregators made up of many vaults.

Keep reading

• What are vault curators in DeFi?
• What is a yield aggregator?
• DeFi looping explained
• What is Ember Protocol?
• Ember Loop: leveraged stablecoin yield on Sui

This article is educational and isn't financial advice. TVL figures are from DefiLlama and vault data from Ember's public vault API, both as of 12 October 2026, and will change. Fee and role details are from Yearn, Beefy, Morpho, Euler and Ember documentation as of the same date. The share price example uses illustrative numbers. JewelSwap operates the Sui yield farms and the Ember Loop vault described here; Ember Loop is an unaudited beta.