Each Automated Yield Farming project typically has a “vault,” which refers to a smart contract that automatically manages deposited funds to maximize yield. Instead of manually farming rewards, users deposit assets into a vault, which executes optimized strategies. Some also take earnings and reinvest them, a term known as auto-compounding.

For example, a vault might deposit stablecoins into lending protocols like Aave or Compound, automatically harvest interest and rewards, swap them for more stablecoins, and reinvest to maximize compounding returns. Some vaults even adjust strategies dynamically, shifting funds between platforms based on market conditions to ensure optimal yield.

The attached graphic is from Superform, showing two USDC yield farming strategies that use different strategies to derive their yield.

By using vaults, users benefit from automation, gas fee savings (as transactions are batched), and access to sophisticated strategies without actively managing their positions. This makes vaults a powerful tool for passive income generation in DeFi.

Vault can be categorized along a few common factors:

1. Asset Class: The type of asset being deposited (e.g., stablecoins, ETH, BTC, LP tokens, LSTs).
2. Yield Source: The mechanism by which yield is generated (e.g., lending, staking, liquidity provision, yield farming, restaking).
3. Network: The blockchain or layer where the strategy is deployed.
4. Risk Level: Some strategies involve low-risk lending on Aave, while others involve high-risk farming with volatile assets or leverage.

Adding Risk Level provides more context because some vaults optimize for safety (e.g., stablecoin lending with low volatility), while others maximize returns with higher risk (e.g., leveraged yield farming).