What is yield aggregator?

A protocol that pools deposits and moves them between yield sources automatically, harvesting and reinventing rewards on behalf of depositors.

Manual yield farming is a job. Rewards accrue in a separate token, they have to be claimed, sold, and redeployed, and each of those steps costs a transaction fee. Doing it weekly on a $500 position loses money to gas. An aggregator does it for everyone at once, so the fixed costs are shared and the compounding happens far more often than an individual would bother with.

What that convenience buys you is a stack of risks, and the aggregator's own contract is only the newest one on top.

How it works

Depositors put an asset into a vault and receive a share token representing their claim on it. The vault deploys the pooled assets into an underlying strategy, which might be a lending market, a liquidity pool, or a staking derivative. A keeper transaction periodically claims accrued rewards, swaps them into the deposit asset, and adds them back to the position, which is the compounding step.

Because the vault holds one large position rather than thousands of small ones, the gas cost of each harvest is divided across every depositor. That is the economic reason aggregators exist, and it is why they compound daily or more often where an individual might manage monthly.

Fees are typically a management fee on assets and a performance fee on harvested yield, stated in the protocol's documentation. Strategies are usually changeable by the protocol's governance or a strategist role, sometimes without a vote and sometimes without notice.

The risk stack is cumulative. You hold the price risk of the deposited asset, the smart contract risk of every underlying protocol the strategy touches, the aggregator's own contract risk, impermanent loss where the strategy provides liquidity, and the strategist's discretion over where your money goes next.

Example

Illustrative. A vault reports a 20 percent annual percentage yield on a stablecoin deposit, compounding daily, and charges a 2 percent management fee and a 20 percent performance fee.

The underlying strategy earns perhaps 4 percent from lending interest and the remaining 16 percent from an incentive token. If that token's price halves over the year, the realized return from that portion is far below 16 percent, and the advertised figure was computed from the token's price at harvest time. After fees, the depositor's outcome can be a fraction of the headline number, and the headline number was never wrong at the moment it was calculated.

Why it matters when you buy

Aggregators sit well beyond a first purchase and they are where a lot of stablecoin balances end up, on the strength of a displayed rate. Understanding that the rate is backward-looking and fee-inclusive is the difference between a yield and an advertisement. If you want yield on assets you already hold, the yield pages show what exchanges offer by asset and jurisdiction, and the guide on stablecoin yield risks covers what is being paid for.

Related terms

• yield farming: the manual activity this automates
• apy: how the advertised rate is computed
• impermanent loss: a cost some strategies carry
• real yield: revenue-backed as opposed to emitted returns
• tvl: the deposit measure these protocols report
• smart contract audit: partial assurance on the code

Questions

Where does the yield actually come from?

Some combination of lending interest, trading fees, staking rewards, and newly emitted incentive tokens. The last is the largest component in many vaults and the least durable, so the breakdown matters more than the total.

Are aggregators safer than farming manually?

They remove operational mistakes and add a layer of contract risk plus strategist discretion. Neither is strictly safer, and the aggregator concentrates a great deal of value in one codebase.

Can the strategy change after I deposit?

On most protocols yes. Strategies are typically upgradeable by governance or a strategist role, so the risk you accepted at deposit is not necessarily the one you hold later.