Yield strategies route deposited assets from a vault into one or more underlying markets, then move them as rates, capacity, liquidity, and risk limits change.
The detail that makes the whole system click is that a deposit is usually not an investment in one pool. It is an instruction to a vault, and the vault is the accounting layer that decides where the capital works.
The first mistake is treating every deposit-and-earn product as a trading pool. For a concrete boundary, Frax Swap AMM routes a swap through pool reserves; it does not decide where a user's deposited USDC should earn next. Frax Swap belongs to the exchange and liquidity side of the boundary, alongside the broader design family established by the Uniswap Protocol and Curve Finance.
The routing path
A typical route has four stages: deposit, accounting, deployment, and rebalancing. You approve the vault to spend an accepted token, send the asset to its contract, and receive shares. Those shares represent your proportional claim on the vault's assets, not a receipt for a particular lending position.
The vault may leave part of the deposit idle as withdrawal liquidity. The rest moves through a strategy adapter into an underlying venue. A stablecoin strategy might supply USDC to an Aave market, provide liquidity to a stablecoin pool on Curve Finance, or deposit into another ERC-4626 vault. If the strategy earns a separate reward token, a harvester can sell or compound it, subject to the strategy's rules.
Suppose a vault holds 1,000,000 USDC. Its allocator might keep 150,000 USDC available for exits, lend 500,000 in a money market, and place 350,000 in a stablecoin liquidity position. If lending utilization rises or the liquidity position becomes less attractive, the allocator can withdraw from one venue and redeploy elsewhere. Your shares remain the same interface while the underlying positions change.
What decides the route
The highest displayed APY is only one input, and often a poor one. A serious allocator weighs the net return after swap fees, gas, bridge costs, performance fees, and slippage. It also checks whether the market has room for more deposits, whether withdrawals can be met immediately, and whether the yield comes from borrowers, trading fees, staking, or temporary token incentives.
Risk limits are equally important. A vault may cap exposure to one protocol, chain, asset, or market. It may reject a route with a weak oracle, excessive utilization, a thin exit market, or a collateral position that could be liquidated. In a leveraged strategy, the deposited asset can be borrowed against and redeployed several times; that increases gross exposure without creating new equity and makes liquidation part of the route.
This is why a rebalance is not simply “move funds to the best rate.” The contract must unwind a position, account for the realized exchange rate, check the destination limits, and deploy the assets without breaking the vault's liquidity buffer. Some vaults automate that process; others require an allocator or strategist to submit approved transactions.
What changed in 2026
The important change this year is that routing is increasingly being designed as cross-chain infrastructure rather than a single-chain transaction. Aave Labs introduced Stable Vaults in July 2026 with an accounting layer that can coordinate earning chains, rebalancing, and the rate shown to the end user. That architecture reflects a broader practical shift: the chain where a deposit is recorded does not have to be the chain where the capital earns.
ERC-7540 also gives asynchronous vaults a standard vocabulary for deposits and redemptions that cannot settle atomically. A cross-chain deployment, a real-world-asset position, or a strategy with a withdrawal queue may accept a request first and issue claimable shares or assets later. That makes more routes possible, but it means “withdraw” can describe a process rather than an instant transfer.
What you need and what you receive
Before depositing, check the accepted asset, supported network, share-price method, withdrawal queue, liquidity buffer, fees, strategy permissions, and whether the displayed return includes incentives. You also need the network's native token for gas and enough tolerance for any swap or bridge step the strategy performs.
After depositing, you normally hold vault shares. The share count may stay fixed while the value per share rises, falls, or changes more slowly than the underlying positions. Your exit depends on the vault's available liquidity and its redemption rules. A vault can be profitable and still delay withdrawals if its assets are locked, bridged, or deployed in an illiquid market.
Where it does not apply
This model is not automatically better than holding the asset directly or supplying it to one transparent lending market. It is a poor fit when you need instant liquidity, strict control over the underlying venue, or a guaranteed one-to-one exposure to the deposited token. Liquidity-provider strategies add impermanent loss, leveraged strategies add liquidation risk, and cross-chain strategies add bridge and settlement risk.
The useful verdict is simple: yield routing removes the need to monitor several protocols, harvest rewards, bridge assets, and rebalance positions by hand. In return, you accept the vault's accounting, permissions, liquidity rules, and strategy risk. Read those rules first; the advertised yield is the output of the route, not an explanation of it.