New Ethereum Token Standard Might Allow Creation of Yield-Bearing Tokens: What is EIP-4626?

With this standard, a single Ethereum ERC-20 token will act similarly to vaults, the backbone elements of the global decentralized finance (DeFi) ecosystem.

Turning tokens into vaults: Introducing EIP-4626

Ethereum (ETH) developer and expert who goes by @0xSassun on Twitter, the co-founder of the Stack3 DAO platform, has taken to Twitter to share the benefits of the most unusual proposal for Ethereum (ETH) in the last month.

ERC-4626 will be a huge game changer and 99% of #DeFi folks are sleeping on it. ?

In short ERC-4626 is a Tokenized Vault Standard.

Let’s dive into it?

— 0xSassun (@0xSassun) May 6, 2022

In short, this proposal will introduce new standard of Ethereum-based tokens, ERC-4626. These tokens will be able to replace vaults, yield-bearing mechanisms for the DeFi segment.

Modern yield-bearing tokens guarantee their users periodic rewards that correlate with the growth of the underlying liquidity pools. However, building DeFis on top of yield-bearing tokens is rather challenging right now: to ensure their integrity, engineers need to write multiple attack-resistant “adapters.”

Should EIP-4626 be approved, such mechanisms would be developed in a “Lego-like” manner, software developers add.

Ethereum (ETH) veterans support the eccentric proposal

As explained by @0xSassun, the implementation of ERC-4626 will boost the interoperability of different DeFi protocols and reduce development complexity and effort.

Also, this update will bring the security and auditability of smart contracts. That is why seasoned Ethereum (ETH) developers are supporting the upcoming innovation.

Namely, it is endorsed by Joey Santoro of Fei Protocol (FEI), representatives of Yearn.Finance (YFI) protocol and VC heavyweights Paradigm.