Crypto vaults, also known as yield farming vaults, are a relatively new concept in the decentralized finance (DeFi) space. These vaults allow users to pool their funds together in a trustless and non-custodial manner and earn yield by investing in various DeFi protocols. The codified nature of smart contracts enables predetermined strategies to be executed based on certain parameters.

The beauty of these vaults is that they allow users to earn a passive income on their cryptocurrency holdings, without having to constantly monitor the market and execute trades. Instead, users can simply deposit their funds into the vault and let the smart-contract algorithm take care of the rest.

A variety of vaults available
There are a variety of different crypto vaults available on the market today, each with their own unique features and benefits. The sector as a whole, is the 9th biggest in DeFi. For example, Yearn Finance offers a range of vaults that are designed to maximize yield while minimizing risk. Yieldyak, on the other hand, offers a range of vaults that are designed to provide exposure to a range of different DeFi protocols.

One of the key considerations when designing a vault is finding the right balance between simplicity and complexity. On the one hand, a vault that is too simple may not provide a competitive advantage as a protocol. On the other hand, a vault that is too complex and abstracts away the risk can be difficult for users to understand and will get exploited by an unforeseen bug more often.

Despite these challenges, there are a number of opportunities and benefits associated with crypto vaults. For example, by pooling funds together, users can benefit from economies of scale and access to larger pools of liquidity or diminish the effect of the transaction fee on the specific strategy.  This can help to increase the efficiency and effectiveness of the investment strategy.

A few examples
Yearn Finance is one of the most popular providers of crypto vaults, offering a range of vaults that are designed to maximize yield while minimizing risk. The platform's unique tokenomics design, which incentivizes users to hold and use the YFI token, adds an additional layer of liquidity and utility to the platform.

Yieldyak offers a range of vaults that are designed to provide exposure to a range of different DeFi protocols. The platform's tokenomics design, which rewards users for holding and using the YAK token, helps to incentivize users to participate in the platform and contribute to its growth.

Beefy Finance is another popular provider of crypto vaults, offering a range of vaults that are designed to provide users with a high degree of flexibility and control over their investments. The platform's unique tokenomics design, which rewards users for holding and using the BIFI token, helps to incentivize users to participate in the platform and contribute to its growth.

Concluding
Crypto vaults are a promising new concept in the DeFi space, offering users the opportunity to earn a passive income on their cryptocurrency holdings. While there are risks and challenges associated with these vaults, the potential benefits and opportunities make them interesting to use in certain situations.

The key question for the investment thesis is whether these platforms can successfully differentiate themselves from their competitors. This can be a challenge for strategy vaults, as they are built on top of specific protocols that provide liquidity, and often have limited network effects. As a result, the value of a particular strategy is difficult to lock into a specific protocol, since the vaults do not own the liquidity of the underlying protocol.

This raises the question of whether strategy vaults will prove to be good investments or whether they will be more akin to public goods. It remains to be seen how successful these platforms will be in differentiating themselves from their competitors and creating unique value propositions for their users. Ultimately, the success of these platforms will depend on their ability to attract and retain users, as well as their ability to effectively manage risk and maximize yield.

Fourstack Capital is a power-user of Beefy and Yieldyak and a small investor and will continue to monitor the space for opportunities.