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Onchain Economics
DeFi Primitives

Vault

A smart contract that automatically executes a yield-generating strategy on deposited assets.

In-Depth Explanation

Vaults abstract away DeFi complexity—users deposit assets and the vault handles compounding, rebalancing, and strategy execution. Yearn pioneered the model with yield-optimizing vaults. Vaults can run simple strategies (auto-compound LP fees) or complex ones (delta-neutral farming). Users pay performance fees but save gas and effort.

Related Terms

Yield Farming

The practice of moving assets between DeFi protocols to maximize returns from incentives and rewards.

Auto-Compound

Automatically reinvesting earned rewards back into a position to maximize compound interest effects.

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Automated Market Maker

AMM

A smart contract that provides liquidity and enables trading using a mathematical formula instead of an order book.

Liquidity Pool

LP

A smart contract holding paired assets that enables trading, lending, or other DeFi activities.

Collateralized Debt Position

CDP

A loan where users deposit collateral to mint or borrow assets, with liquidation risk if collateral value falls.

Lending Protocol

A DeFi application that matches lenders with borrowers through smart contracts, enabling permissionless borrowing and lending.

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