What is a yield aggregator?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
A yield aggregator allocates deposits across several DeFi protocols and reallocates automatically as conditions change. It removes work for the user, but the depositor now carries the aggregator's own contract risk on top of the risk of every protocol it allocates into.
Key points
- Automates allocation and reallocation across protocols
- The user performs none of the individual steps
- You inherit the risk of every destination at once
- The aggregator's own contract risk is added on top
Definition
A service that distributes pooled deposits across multiple DeFi protocols and shifts the allocation automatically as conditions change, with the allocation rules set by code or by an operator.
In DeFi the terms for the same asset differ by venue and change constantly. Chasing the best destination by hand costs gas and attention on every move. An aggregator batches many users' funds so they share that cost, and automates the switching as conditions shift.
Who makes the allocation decision varies. Some are governed entirely by code; others let a team or a strategist propose and change destinations. The latter is more flexible, but the consequences are larger if those privileges are stolen or exercised badly. Where that authority sits is worth checking before depositing.
Note how risk accumulates rather than diversifies. Spread across five protocols, a breach in any one of them costs whatever was allocated there. On top of that, a flaw in the aggregator's own contracts puts the entire pool at risk. What looks like diversification can equally be read as multiplying the number of things that must not fail.
Watch out for
- · A breach at any single destination costs whatever was allocated there
- · Abuse of the aggregator's own contracts or upgrade keys puts the entire pool at risk
- · Because the design chases better terms, capital can end up in the riskier protocols