Lending vault

A lending vault is a smart contract that pools money from many depositors and supplies it to one or more lending markets on their behalf. It lets people earn interest on an asset without choosing markets, moving funds, or managing positions themselves. The vault handles that work through its code.

When you deposit, the vault usually issues a token that represents your share of the pool. As the underlying loans earn interest, the value backing that share grows, and you redeem the token later for your deposit plus any interest earned. Many vaults follow the ERC-4626 standard, a common template for how deposits, shares, and withdrawals work.

A lending vault carries the risk of the markets it lends into, such as borrower defaults or falling collateral values. It also carries smart-contract risk, since a flaw in the vault code could lead to loss of deposited funds.