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Hey friends 👋
If you've been hanging around the crypto space long enough, you've probably heard people using terms like composability or money legos. Believe it or not, this really is more than freshly-coined technobabble. Rather, these are references to the use of open-source standards and the benefits they bring to blockchains, especially with respect to financial applications.
In the world of Ethereum, all standards begin life as an Ethereum Improvement Proposal (EIP). This is a document put forward by a member of the community describing a new feature they'd like to see become part of Ethereum. If the author of the proposal can build enough consensus among all the relevant stakeholders, the EIP becomes codified as part of a given upgrade to the network.
There are several different flavours of EIPs: Core, Networking, Interface, and the one this article will focus on…
According to Ethereum.org, ERCs are:
application-level standards and conventions, including contract standards such as token standards (ERC-20), name registries (ERC-137), URI schemes, library/package formats, and wallet formats.
You’ve probably heard of some popular ERCs, like the aforementioned ERC-20. This is the standard token type used on Ethereum and other EVM compatible chains. The majority of (fungible) tokens that you hold in your crypto wallets are ERC-20s. This includes everything from stablecoins like USDC to governance tokens like POOL to wrapped assets like wETH.
The ERC-20 standard defines a set of functions and events that must be implemented in a smart contract for it to be considered compliant. These functions enable developers to transfer tokens, check token balances, and manage token supply, among other capabilities.
— thirdweb
By following the ERC-20 standard tokens can interoperate with the same contracts allowing them to be easily swapped for one another, used for all the same purposes, and accessed by any wallet that supports the standard.
While ERC-20 meets the needs for a variety of use cases, it has its limitations, so as decentralized finance has come to prominence, teams from across the crypto space have began innovating around ways to generate yield. This created demand for a new standard to be developed.
ERC-4626 is an extension to ERC-20 that creates a standard for tokenized vault allowing for yield-bearing tokens that are composable across DeFi protocols. “This allows developers to build on top of any vault following the 4626 implementation, instead of creating custom adapters each time,” according to PoolTogether, one of the members of the 4626 Alliance.
The Alliance, announced earlier this year has already onboarded several big names from the world of decentralized finance. According to their announcement post on Medium, ERC-4626 offers the following key benefits:
Substantially lowers the integration effort for yield-bearing vaults that are powering many DeFi projects
Supercharges composability and capabilities built by individual DeFi projects
Natively creates derivative assets, generating a new kind of liquidity independent from the underlying assets
In order to to foster collaboration and push the adoption of the standard, a cohort of protocols and applications have come together to form the 4626 Alliance. At the time of writing, this includes:
Alchemix
Aztec
Balancer
Beefy Finance
Blockworks
Frax Finance
Joey Santoro (founder of Fei Protocol, and co-author of EIP-4626)
Morpho
Mstable
PoolTogether
Sommelier Finance
Superform
Yearn
While it’s early days for this group, they’ve rallied behind a common set of goals. These are to:
Establish a common bounty board for “4626 essentials.” These essentials could be adapters wrapping useful existing vault contracts and other things. They will be voted on/built individually/jointly by members of the Alliance
Fund a common vehicle to distribute the costs and outsource through bounties the development of these “4626 essentials.” Each member of the Alliance will commit $3k or more for this purpose
Promote the ERC-4626 standard through publication and events. mStable & Sommelier Finance organized a side event at EthLisbon
Create and maintain an open-source ERC-4626 resource library
If you read my post about the next version (v5) of PoolTogether's crypto prize-savings protocol is built for the ERC-4626 standard. v5 is currently in audit, but, once live, anyone will be able to add new assets and yield sources to the protocol in a fully permissionless manner.
Members of the 4626 Alliance as well as many people in and around decentralized finance believe that ERC-4626 will help usher in a new era of DeFi that is safer, more interoperable, and more open. I tend to agree with that assessment.
To learn more about ERC-4626 and the 4626 Alliance, visit the website:
And to learn more about PoolTogether v5, you check out their docs or read my post all about it:
https://mirror.xyz/thumbsupfinance.eth/TN-GOpM0QEsnlUCcYi8RBoY1VWWtoOf5hIYkm-KiORI
Until next time,
Thumbs Up
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