Vaults & ERC4626 Mechanics

Morpho Vaults V1.x and Morpho Vaults V2 expose the standard ERC‑4626 interface for tokenized vaults. Understanding these mechanics is essential for building robust Earn integrations.

ERC4626 Standard

The ERC‑4626 standard defines four core functions for deposits and withdrawals.

Core Functions

Deposit

// Deposit a specific amount of underlying assets.
// Example: deposit 10 USDC and receive N vault shares.
function deposit(uint256 assets, address receiver) external returns (uint256 shares);
 
// Mint a specific amount of shares.
// Example: mint N shares; the corresponding assets are pulled from the user.
function mint(uint256 shares, address receiver) external returns (uint256 assets);

Withdraw

// Withdraw a specific amount of assets.
// Example: withdraw 10 USDC; N shares are burned.
function withdraw(uint256 assets, address receiver, address owner) external returns (uint256 shares);
 
// Redeem a specific amount of shares for assets.
function redeem(uint256 shares, address receiver, address owner) external returns (uint256 assets);

Assets vs. Shares

Assets are the underlying token (e.g., USDC, WETH).
Shares represent proportional ownership of the vault and typically appreciate as yield accrues.

Conversions

// Convert assets to shares (pre‑deposit expectation).
const shares = await vault.previewDeposit(assetAmount);
 
// Convert shares to assets at the current rate.
const assets = await vault.convertToAssets(shareAmount);
 
// Estimate shares needed to withdraw a target asset amount.
const sharesNeeded = await vault.previewWithdraw(assetAmount);
 
// Estimate assets received when redeeming shares.
const assetsReceived = await vault.previewRedeem(shareAmount);

Share Price Appreciation

Vault performance is reflected in the share price:

// 1 vault share = 1e18
const sharePrice = await vault.convertToAssets(10n ** 18n);
// Example: totalAssets grows from 1.0M to 1.1M with 1.0M shares
// -> price from $1.00/share to $1.10/share (≈10%)

Inflation Attack Protection

ERC4626 vaults are susceptible to share inflation attacks, where an attacker manipulates the share price to cause rounding losses for subsequent depositors. This affects all ERC4626-compliant implementations.

The Protection Mechanism

Before interacting with a vault, verify that a dead deposit has been made to address 0x000000000000000000000000000000000000dEaD. This initial deposit establishes a baseline share supply that makes inflation attacks economically unfeasible.

// Verify the vault has adequate dead deposit protection
const deadAddress = "0x000000000000000000000000000000000000dEaD";
const deadShares = await vault.balanceOf(deadAddress);
 
// Minimum threshold: 1e9 shares (~$10 equivalent for most assets)
if (deadShares < 1_000_000_000n) {
  throw new Error("Vault lacks adequate inflation protection");
}

Why 1e9 shares? This threshold ensures that the cost to manipulate the share price exceeds any potential gain from the attack. The specific value (1e9 shares) is a conservative standard that works across different asset decimals and price points.

• The dead deposit does not need to be made atomically with your interaction
• Once established, it cannot be withdrawn (by design)
• Both Morpho Vault V1 and V2 should have this protection in place
• Curators and vault deployers are responsible for ensuring this protection exists

Additional Considerations: Slippage

• Share price may shift due to interest accrual or other vault activity between simulation and inclusion
• User-facing applications benefit from showing expected vs. actual amounts received

• Recommended: Use Bundlers for app integrations—slippage checks are handled automatically
• Alternative: Implement min-received checks around ERC4626 operations for direct integrations

See the Assets Flow tutorial for integration examples.