Following the successful deployment of twenty-five previous Ethereum Request for Comments (ERC) standards, including the industry-recognized ERC-20 designed for tokens, ERC-721 for nonfungible tokens (NFTs), and the single smart contract multi-token ERC-1155; the newly-passed ERC-4626 is gaining traction within the Ethereum community for its purported yield-bearing benefits.
Referred to as the “tokenized vault standard,” ERC-4626 is set to be implemented at the next Ethereum fork upgrade following approval by the developers within Ethereum’s governance procedure.
Serving as an addition to ERC-20 — and considering the utilization of under-review EIP-2612 for the approval shares user experience (UX) — the ERC-4626 standard is expected to enact wide-scale benefits across Ethereum’s decentralized finance (DeFi) ecosystem, enhancing the composability and accessibility of yield-bearing vaults across multiple networks.
As an application programming interface (API), much of the implementation will occur behind the scenes within the network’s operation, and therefore will not be particularly visible on the user-end dashboard, but will be immensely valuable for their participating experience.
One of the primary attractions to interacting with DeFi protocols for the retail market is their positively disproportionate yield generation in comparison to traditional banking bond accounts and savings offerings.
Yield-bearing assets such as SushiSwap’s xSushi, Aave’s aToken, or Yearn Finance’s yToken, enable users to stake the network’s native tokens for a wrapped version, benefiting from both the acquired liquidity and interest earned.
However, as Yearn Finance succinctly points out, “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”, as well as that if you “build an app on top of one ERC-4626 vault… it will work for all other ERC-4626 tokens.”
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The concept for ERC-4626 was initially pitched on Dec. 22 as an Ethereum Improvement Proposal (EIP) by five authors led by the founder of Fei Protocol, Joey Santoro.
According to an anecdotal story from co-author t11s, the 4626 number was birthed during an exercise workout, noting that the melodic rhyming pattern sounded more appropriate for the title of their invention than the more monotonous 4700 for instance.
Fundamentally viewed as a protocol standard designed to optimize and unify the technical parameters of yield-bearing vaults, the proposition swiftly sparked discussions, suggestions and rebuttals on open-source development platforms Github, Ethereum Magicians and crypto native social media Twitter, with a largely positive consensus noted throughout the community.
One responder named albertocuestacanada highlighted a concern with the potential impact of language regarding the calculateShares required to equal sharesAmount section, arguing that this would prevent vaults from implementing deposit or withdrawing fees. Santoro soon revised this section “in favor of a better invariant related to it returning the same value as a mint/deposit call in the same transaction.”
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