Vaults are not for everyone or for every situation, so it’s important to assess the pros and cons to see if depositing into a vault is right for you.
It’s a low cost and low effort way to increase your holdings of an asset.
Low cost - You don’t incur any of the extra transaction expenses associated with yield farming strategies like minting or staking.
Assuming you already own the asset, the only gas you pay is when you’re depositing or withdrawing.
Even with high gas prices – Vault deposit/withdrawals only cost a few dollars (much love, Andre).
Low effort - once your assets are in a vault, that’s it.
No need to worry about ratios, logistics, or timing entries.
That being said, you should monitor the current vault strategy.
While you don’t need to execute it, you should be aware of where your assets are.
It’s not “set it and forget it” but “deposit and monitor.”
Increase your holdings - as a long term holder of an asset, you’re maintaining your exposure to the asset since vaults are the same asset in and out.
So if you’re bullish on LINK for example - and soon ETH (!!!) - you get to maintain your exposure while earning more LINK.
Simple answer - if you want more control.
You have no control over the strategy being used by the Vault and you have no control where the profits are deployed.
While both these cons can easily be mitigated, it is important to understand what you’re getting into.
No control over the strategy - New token launches, for example, take time to meet YFI’s liquidity requirements.
(Or changes in environment to current strategies – like what’s going on with CRV at the moment – 8/25/20)
And some of the highest returns are in the beginning when demand and trading activity is high.
For better (or for worse), Vaults never farmed YAMs.
· Someone with a higher risk tolerance for new DeFi projects
· Bullish on a new token long term (so want to start earning it now)
A Vault is not the right place for your assets. Mitigated by... monitoring the strategy and withdrawing capital when there’s a new yield farming opportunity you want to pursue.
No control where the profits are deployed - Profits are reinvested into the asset you deposited.
Remember, same asset in and out so the LINK vault buys more LINK. If there is another asset that you want to accumulate, a vault will not give you that exposure directly.
Mitigated by… withdrawing profit from your Vault and selling it for whatever asset your desire.
That’s it. The pros and cons of vaults.
Remember, nothing is permanent. What is deposited, can be withdrawn.
If you deposit into a vault and later realize it is the wrong choice for you, you can get your assets back. There is no locking.
You’ll just be out a few bucks in gas - but heck, I bet the return on your capital helps offset it.