Vaults are smart contracts that are designed to hold funds and execute an assigned strategy. They often have multiple diverse strategies which allows Vaults to interact with different DeFi protocols to maximize their profit. Vaults can supply collateral and borrow another asset against this and then deploy the borrowed asset on another DeFi platform. Whenever a certain platform no longer offers high yield, the Vault can, switch to another platform for higher yields.
The reason why Vaults are so popular is because:
- They save a lot of researching time and fees for investors. Typically, it can take hours to find the best yield farming strategy, not to mention the high transaction-fees (when investing on the Ethereum network).
- No matter how complex the strategy of the Vault, the investor always gets his initial deployed asset back from the Vault.
