Building a Yield Strategy: From Concept to Live Vault

Introduction

Vaults have become the dominant capital allocation interface in DeFi. With total value locked (TVL) across vault protocols exceeding $15 billion and curated strategies managing billions in deposits, the infrastructure is mature. The gap is no longer "can I build a vault?" but "how do I build a good one?"

At Lagoon, we have deployed 120+ vaults across 18+ EVM chains, permissionlessly, with no approvals, no minimum TVL, and no delays. That scale gives us direct visibility into what separates strategies that attract capital from those that sit empty. The pattern is consistent: successful vaults are not just good strategies wrapped in a smart contract. They are well-designed products with clear risk parameters, appropriate settlement cadences, and properly scoped governance.

This guide covers the full lifecycle, from strategy thesis to live vault, using Lagoon's ERC-7540 infrastructure as the reference implementation.

Phase 1: Define Your Strategy Thesis

Before touching any vault configuration, answer one question: what is your edge?

A vault is a product. Like any product, it needs a reason to exist. "Yield farming" is not a thesis. "Earning 6-8% on stablecoins by lending across Aave and Morpho with automated rebalancing" is a thesis, because it specifies the source of return, the risk profile, and the mechanism.

The Strategy Spectrum

Not all strategies map equally well to vault structures. The key variables are risk, operational complexity, and settlement requirements.

Stablecoin lending is the most common vault strategy in 2026, offering 3-8% annual percentage yield (APY) with minimal directional risk. Protocols like Aave, Morpho, and Compound provide the underlying yield. The curator's edge comes from allocation optimization: choosing the right markets, rebalancing between protocols based on rate fluctuations, and managing utilization risk.

Liquid staking with looping combines ETH staking rewards (via wstETH, rETH, or similar liquid staking tokens) with recursive lending to amplify yield to 4-12%. The risk is moderate: smart contract exposure compounds with each loop, and liquidation risk increases with leverage.

Delta-neutral arbitrage neutralizes directional price exposure by holding offsetting long and short positions. Vault curators typically arbitrage funding rates across perpetual exchanges or basis spreads between spot and futures. APYs range from 6-15%, but operational complexity is high, often requiring cross-chain or centralized exchange (CEX) execution.

Active yield farming captures token incentive programs, liquidity mining rewards, and protocol emissions. Returns can exceed 25%, but they depend on incentive sustainability, and impermanent loss is a real cost. This category requires the most active management.

RWA yield (tokenized T-Bills, credit products) provides 3-6% with low DeFi-native risk, but introduces settlement latency (T+1 or longer) and compliance requirements. ERC-7540's async settlement model was designed specifically for this use case.

Defining Your Risk Bounds

Every strategy thesis should include explicit risk parameters:

• Maximum drawdown tolerance: the worst-case loss you are willing to accept in a single settlement period
• Liquidity constraints: how quickly can the vault unwind positions to meet redemptions?
• Concentration limits: maximum exposure to a single protocol, chain, or asset
• Leverage ceiling: for looping or leveraged strategies, the maximum loan-to-value ratio

These constraints directly inform your vault architecture in Phase 2.

Phase 2: Map Strategy to Vault Architecture

Once the strategy thesis is clear, translate it into vault configuration decisions. Four choices define the architecture: custody model, settlement frequency, fee structure, and flow direction.

Custody Model

The curator's wallet is the vault's execution layer. Every trade, bridge, and protocol interaction happens through this address. Two primary options exist:

Safe (multisig) is the default for most DeFi-native teams. A 2-of-3 or 3-of-5 signer configuration provides security without operational friction. With Zodiac Roles Modifier, you can scope permissions at the contract, function, and argument level, limiting what the curator can do with vault capital. For cross-chain strategies, Safe supports bridging across EVM chains.

MPC wallets (Fireblocks, Fordefi) suit teams that need institutional-grade signing workflows or high-frequency execution. MPC distributes key shards across multiple parties, eliminating single points of failure. Policy engines enforce transaction rules before signing, providing a different security model than onchain enforcement. For a deeper comparison, see our custody guide.

Settlement Frequency

This is the most consequential architectural decision. Settlement frequency determines how often deposits and redemptions are processed, which directly impacts the depositor experience and your strategy's operational requirements.

The tradeoff: frequent settlement (daily or per block) provides better UX for depositors but constrains the curator to highly liquid strategies. Infrequent settlement (weekly or biweekly) gives the curator more flexibility to execute complex strategies but means depositors wait longer to enter or exit.

Fee Structure

Lagoon vaults support two fee types, both enforced by the smart contract:

• Management fee: a percentage of assets under management (AUM), accrued continuously. Typical range: 0.5-2% annually.
• Performance fee: a percentage of profits above a high-water mark. Typical range: 10-20%. The high-water mark prevents charging performance fees on recovery after a drawdown.

Design your fees to align incentives. A vault charging 2% management + 20% performance on a 5% APY stablecoin strategy takes nearly half the gross return. A vault charging 0% management + 10% performance on the same strategy leaves more value for depositors and still earns on outperformance.

Lagoon's protocol fee (10% of curator fees, taken at settlement) applies only to vaults that charge fees. Zero-fee vaults pay nothing.

Settlement Flexibility

Lagoon gives the curator full flexibility over when to accept deposits and settle redemptions. The curator controls the settlement cadence, choosing when to process queued requests based on the strategy's liquidity profile and operational rhythm.

Phase 3: Configure Governance and Roles

Lagoon's governance model separates concerns across four distinct roles. No single party controls the entire vault, which is both a security feature and an operational requirement.

Scoping Permissions

The most common governance mistake is assigning all roles to the same address. This creates a single point of failure and eliminates the checks and balances that the role separation is designed to provide.

Best practice: the valuation provider should be independent from the curator. This two-step settlement process (valuation proposal, then curator approval) prevents either party from unilaterally manipulating the share price. The valuation provider proposes a NAV; the curator verifies it before calling settlement. Neither can act alone.

For DeFi-native teams without a formal compliance function, the whitelist manager role can be left open (permissionless deposits). For vaults targeting institutional capital, this role gates investor access based on KYC/KYB verification.

Phase 4: Deploy and Operate

With the strategy thesis, architecture, and governance defined, deployment itself takes minutes.

Deployment via Vault Factory

Lagoon's Vault Factory is a permissionless smart contract deployed across 18+ EVM chains. No approvals, no minimum TVL, no partnership required. You configure the vault parameters (name, underlying asset, fee structure, governance addresses) and deploy. The factory creates two contracts: the ERC-7540 vault and a silo contract that holds pending deposits and redemptions.

For a step-by-step walkthrough, see our deployment guide.

The First Settlement Cycle

After deployment, the vault's initial NAV is zero. The first operational cycle looks like this:

1. Deposits arrive: investors call requestDeposit(), and their assets move to the silo
2. Curator deploys capital: the curator executes the strategy using the custody wallet
3. Valuation provider submits NAV: the total value of managed positions is proposed onchain
4. Curator settles: the curator approves the NAV and calls settleDeposit(), minting shares for all queued depositors at the forward price

This cycle repeats at the settlement frequency you configured. For redemptions, the process mirrors deposits: investors request, the curator unwinds positions as needed, the valuation provider updates the NAV, and the curator settles. One critical difference: for redemptions, only the investor can claim their assets (the curator cannot claim on their behalf), which protects against forced liquidations.

Operational Monitoring

Once live, monitor three things:

1. NAV accuracy: the valuation should reflect the true market value of all positions held by the curator. Discrepancies between onchain NAV and actual position values create arbitrage opportunities against your depositors.
2. Settlement queue depth: if deposit or redemption requests are accumulating faster than your settlement cadence can handle, either increase frequency or communicate expected wait times to depositors.
3. Strategy performance vs. benchmark: track your vault's returns against the relevant benchmark (stablecoin lending rate, ETH staking yield, etc.). Consistent underperformance relative to risk taken signals a thesis that needs revision.