Interoperability in DeFi is a big deal. Being able to move assets across chains or taking your asset to invest wherever you want is where everyone wants DeFi to go. And we aren’t quite there yet. But one tool Ethereum and EVM compatible chains can use to help us achieve this goal is the ERC-4626 token standard.
What is ERC-4626?
Many of you are aware of the most popular token standards. This standardization makes them easier to use and to move back and forth. For example, we have:
- ERC-20 for tokens especially stablecoins and governance tokens
- ERC-721 and 1155 for NFTs
- BSC-20 for the Binance Chain’s compatible coin with ERC-20
- And others
Now we have the ERC-4626. This is the tokenized vault standard. Vaulting is the process of locking in a token on one chain so it can be minted into a token that you can use on a different chain. This minted token often called wrapped X, is then compatible with other chains. Adding liquidity and collateral capability for Bitcoin happens with wBTC, the wrapped version.
The Tokenized Vault Standard: ERC-4626 is now FINAL 🥳
This is a standard for everyone. The more the Ethereum and broader EVM-chain ecosystem coordinate development efforts, the faster DeFi can grow and scale 🤝
What's next? 👇
— Joey 💚’s ERC-4626 (@joey__santoro) March 17, 2022
When the vaulting method is standardized with this token, that will add a feeling of safety to locking your coins in the smart contract to mint or wrap new coins.
Who Uses ERC-4626?
This token standard is already in the market. Protocols using it include:
- Balancer Linear Pools
- Yearn Finance
- Yield Protocol
- Alchemix v2
- Convex Finance’s yield pools
- And more
So while this is new as a public announcement the standard is in practical daily use already. Open Zeppelin is adding it to its smart contract code repo so more apps can adopt it easily and quickly.
@OpenZeppelin is working on a version for their smart contracts repo 👀https://t.co/nKFbIBwBfu
— Joey 💚’s ERC-4626 (@joey__santoro) March 17, 2022
Joey Santoro of Fei Protocol developed this standard. It’s in their Github (link in the tweet to check it out). For example, you can use this transaction router to send any 2 ERC-4626 tokens in a single transaction. This will save time and fees.
The time, cost, energy, and concerns around the lock, vault, mint, and wrap process should all improve as more EVM compatible chains and apps adopt this new token standard.
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