The ERC-4626 standard, formalized in early 2022, standardized deposit, withdrawal, and accounting functions across DeFi vaults, significantly improving composability and integration simplicity. Yearn Finance built on this standard with their v3 architecture, separating core vault functionality from strategy implementation. Yearn's innovation allowed multiple strategies per asset with shared profits among strategists, vault users, and protocol treasuries.
Octant’s yield donating vaults extend Yearn’s architecture with a key modification: all generated yield is tokenized as ERC-4626 shares and transferred directly to an allocation address, creating perpetual funding for ecosystem growth and development without affecting depositor principal.
Yield Donating Vaults separate capital preservation from yield generation, enabling users to maintain their principal while passively funding ecosystem initiatives. Instead of compounding returns for depositors, profits are tokenized as ERC-4626 shares and automatically transferred to a designated allocation address.
Vault governance involves clear roles: management sets strategy parameters, keepers manage harvest operations, and emergency administrators handle crisis situations. Donations flow through a sophisticated on-chain splitter contract, forming a transparent network of funding nodes. Users deposit protected principal, which can be withdrawn anytime, with yields allocated transparently.
The SkyCompounder strategy exemplifies this model when 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.
Unlike centralized funding models, our yield-donating architecture creates a decentralized funding network, enabling organizations to independently manage and allocate yields. This network avoids centralized gatekeepers, allowing capital to flow based on shared values.
The architecture combines modular strategies with flexible allocation mechanisms, enabling ecosystems to build complex, permissionless funding graphs. Organizations can deploy and adjust strategies without centralized approval, fostering organic network growth responsive to evolving community needs.
As more strategies emerge, natural clustering occurs around successful initiatives, creating resilient funding streams from multiple sources. This "deep funding" network allows for sophisticated, community-driven allocation without centralized control, optimizing support for valuable public goods.
“Perfection is achieved not when there is nothing more to add, but when there is nothing left to take away.” This philosophy underpins our approach to transforming standard yield vaults into dedicated donation infrastructure. The necessary technical adjustments are surprisingly minimal yet highly impactful. Rather than distributing profits back to depositors, we redirect them to a configurable donation address—a simple shift primarily involving the alteration of the profit distribution function to mint ERC-4626 shares directly to this new address.
Critically, we preserve the robust vault accounting and proven strategy execution logic inherited from Yearn’s architecture. This means our modified vaults retain all security properties and reliability of the original system. Our design intentionally leverages existing, mature infrastructure, significantly reducing complexity, development overhead, and learning curves for new developers.
This modular design clearly separates yield generation from allocation mechanisms. By funneling yield into specialized splitter contracts, ecosystems can flexibly configure distribution according to predefined rules without altering core vault logic. This separation ensures simplicity in implementation and adaptability in operation, empowering organizations to dynamically adjust allocations without compromising the security or functionality of the underlying vault system.
The practical outcome is immediate deployment capability for organizations, creating continuous funding streams aligned with their specific objectives. Ecosystems can effortlessly establish sustainable support structures for diverse initiatives—from quadratic funding programs and developer tooling enhancements to environmental projects—transforming yield strategies into powerful instruments for community and ecological benefit. This approach addresses immediate funding needs and lays a robust foundation for more sophisticated and impactful resource allocation as the ecosystem evolves.