The ERC-4626 standard, formalized in early 2022, revolutionized DeFi by introducing a unified interface for yield-bearing vaults, solving critical fragmentation issues that had plagued the ecosystem. This "Vault Standard" standardized deposit, withdrawal, and accounting functions across DeFi protocols, significantly improving composability and reducing integration complexity. Building upon this foundation, Yearn Finance pioneered the tokenized strategy approach with their v3 architecture, which decoupled vault accounting from investment logic by introducing a separation between core vault functionality (handling user deposits/withdrawals) and strategy implementation (managing yield generation). Yearn's innovation allowed for multiple strategies per asset and introduced a profit-sharing mechanism between strategists, vault users, and protocol treasuries.
Our yield donating vault implementation extends Yearn's tokenized strategy framework with a critical modification: rather than distributing profits among depositors, all generated yield is tokenized as ERC-4626 shares and transferred to a designated allocation mechanism address, creating a perpetual contribution mechanism for ecosystem expansion, collaborative initiatives, or protocol development while preserving depositor principal.
This key adjustment transforms conventional yield-bearing vaults into capital-preserving growth engines without sacrificing the battle-tested security, standardization, and composability of the underlying ERC-4626 and Yearn v3 architecture
Yield Donating Vaults represent an innovative approach to decentralized finance that separates capital preservation from yield generation and distribution, allowing users to maintain their principal investment while directing all generated yield toward fueling ecosystem growth and driving impact. These vaults function similarly to standard yield-bearing vaults but with a critical difference: rather than compounding returns for depositors, all profits are tokenized as ERC20 shares and automatically transferred to a designated allocation mechanism address. This model enables passive contribution, allowing capital to simultaneously preserve user value and empower builders, contributors, and aligned initiatives—all without requiring active management from depositors.
Each yield donating vault operates with distinct roles that ensure proper governance and operational security. The management role can configure strategy parameters and adjust operational settings. The keeper role is responsible for triggering harvests through "report" functions that realize profits and losses. The emergency admin can execute emergency withdrawals in the event of protocol risks. Under the hood, what appears as a simple donation address is actually implemented as a sophisticated payment splitter contract managed by the organization that deployed the vault. This splitter forms a node in a funding graph, creating distribution edges to various ecosystem development initiatives. Users interacting with the vault deposit principal which is protected and can be withdrawn at any time, while the flow is managed transparently through this on-chain allocation mechanism.
The SkyCompounder strategy exemplifies this model by integrating with Sky Protocol's staking system. When users deposit USDS tokens into the vault, the strategy stakes these tokens in the Sky Protocol, where they earn SkyRewards tokens. During harvest operations, the strategy claims these rewards and, depending on configuration, uses either Uniswap V2 or V3 to swap reward tokens back to USDS. These mechanisms ensure efficient conversion of rewards to the base asset, maximizing the donation value while maintaining operational efficiency.
A complete growth cycle begins when users deposit assets, which the vault records as shares while the strategy deploys capital to Sky Protocol's staking contract. Over time, staking rewards accrue, and when a keeper calls the report function, several key processes trigger: the strategy claims all pending rewards, swaps them, and returns the total assets under management to the vault.
The vault recognizes the difference between previous and current total assets as profit, which it tokenizes as vault shares and transfers to the payment splitter allocation mechanism address. The splitter can then distribute these shares based on predefined allocation rules, or the shares can be transferred to other addresses or redeemed for the underlying assets, completing the cycle while preserving the user's original capital.
This mechanism creates a perpetual value stream for contributors and builders as long as users maintain deposits in the vault and the underlying protocol generates yield.
Our decision to fork Yearn's battle-tested architecture while removing protocol fees represents a deliberate evolution toward ecosystem-scale engagement and impact.
By eliminating the traditional fee structure that distributes profits between protocol treasuries, strategists, and users, we've created a more efficient conduit for channeling yield directly toward ecosystem participation and contribution. However, we've carefully preserved Yearn's modular strategy framework, empowering developers to continue creating innovative yield-generating strategies that now serve collective advancement rather than private accumulation.
This approach acknowledges and builds upon Yearn's groundbreaking work in strategy development tools, while redirecting the value flow. By maintaining compatibility with Yearn's development patterns and documentation while reorienting the value proposition toward ecosystem value, we've created a respectful fork that we hope extends rather than competes with Yearn's vision, potentially opening new markets for yield-bearing products that appeal to contributors, community builders, and regenerative ecosystems.
Our architecture creates a powerful cross-product of possibilities, giving strategists two distinct approaches to maximize impactful yield.
The first pathway enables strategists to develop "direct strategies" that connect to yield opportunities without intermediaries, eliminating multiple fee layers that would otherwise reduce donation amounts. These direct integrations allow for highly efficient yield capture by interfacing directly with protocols like Sky, Morpho, or Aave, with all generated revenue flowing to the donation address without deductions. Alternatively, strategists can pursue a "wrapper strategy" approach, creating meta-strategies that simply wrap existing Yearn vaults or other yield aggregators.
This second pathway leverages the battle-tested optimization and security of Yearn's expert strategies while redirecting the yield output to impactful causes. While wrapper strategies do incur the underlying protocol's fees, they benefit from Yearn's sophisticated yield optimization techniques and can be deployed rapidly with minimal development effort. This dual-pathway system creates an extensible framework where strategists of varying technical backgrounds can contribute—from DeFi experts creating custom high-efficiency direct strategies to less-specialized developers who can still make significant impact by repurposing existing yield strategies toward philanthropic ecosystem advancement/growth ends.
The resulting ecosystem offers DAOs and aligned users a schelling point to align how their capital generates sustainable contributions and growth.