Vaults provide a way to manufacture yield while keeping assets technically off company books, but the structure may still produce uneven outcomes and the pressure to deliver returns can push curators to loosen standards or add leverage.
When crypto platform Stream Finance collapsed late last year, after roughly $93 million in user funds were lost, it exposed a familiar fault line in digital assets: promises of “safe yield” tend to unravel when markets turn.
The failure was unsettling not only for the losses it produced, but for the mechanisms behind them. Stream had pitched itself as part of a new, more transparent generation of crypto yield products — designed to avoid the hidden leverage, opaque counterparty exposure and discretionary risk-taking that brought down centralized lenders like BlockFi and Celsius in the last cycle.
Instead, it showed how quickly those same dynamics — leverage, off-platform exposure and concentrated risk — can return when platforms begin chasing yield, even when the market plumbing appears safer or the transparency more reassuring.
Yet the broader promise of safer crypto yield has endured. Vaults — on-chain investment pools built around that idea — now manage more than $6 billion in assets, according to industry data. Crypto asset manager Bitwise predicts assets in vaults could double by the end of 2026, as demand for yield on stablecoins grows.
At a basic level, vaults let users deposit cryptocurrencies into shared pools that deploy funds into lending or trading strategies designed to generate returns. What sets vaults apart is how they’re marketed: as a clean break from the opaque lending platforms of the past. Deposits are non-custodial, meaning users never hand their assets to a company. Funds sit in smart contracts that automatically deploy capital according to preset rules, with key risk decisions visible on the blockchain. In function, vaults resemble familiar parts of traditional finance, pooling capital, converting it into yield and offering liquidity.
But the structure is distinctly crypto. All of it happens outside the regulated banking system. Risk isn’t cushioned by capital reserves or overseen by regulators — it is embedded in the software, with losses realized automatically as algorithms rebalance positions, liquidate collateral or unwind trades when markets move.
In practice, that structure will likely produce uneven outcomes, as curators, or firms that design and manage the vault strategies, compete on returns and users discover how much risk they are willing to bear.
“Some players will do a bad job,” said Paul Frambot, co-founder of Morpho, the infrastructure that underpins many lending vaults. “They will probably not survive.”
For builders like Frambot, that kind of churn is less a warning sign than a feature of open, permissionless markets — where strategies are tested in public, capital moves quickly, and weaker approaches are replaced by stronger ones over time.
The timing of their growth is not incidental. With the passage of the Genius Act, stablecoins are moving closer to the financial mainstream. As wallets, fintech apps and custodians race to distribute digital dollars, platforms face a common problem: how to generate yield without putting their own capital at risk.
Read: Trump Signs Stablecoin Bill, Delivering Win for Crypto IndustryBloomberg Terminal
Vaults have emerged as the workaround. They provide a way to manufacture yield while keeping assets technically off company books. Think of it like a traditional fund — but without surrendering custody or waiting for quarterly disclosures. That’s how curators pitch the model: users retain control of their assets, while gaining access to professionally managed strategies that operate automatically on-chain.
“Curators act as risk and asset managers, much like BlackRock or Blackstone do for funds and endowments they manage,” said Tarun Chitra, CEO of Gauntlet, a crypto risk-management firm that also operates vaults. “But, unlike BlackRock or Blackstone, it is non-custodial, so the asset manager never holds the user’s assets; they are always in a smart contract.”
That structure is designed to correct a recurring weakness in crypto finance. In previous cycles, products pitched as low-risk often hid borrowed money, re-used customer funds without disclosure, or relied heavily on a few fragile partners. The algorithmic stablecoin TerraUSD offered yields near 20% by subsidizing returns. Centralized lenders like Celsius quietly funneled deposits into risky bets. When markets turned, the damage spread fast — and without warning.
Most vault strategies today are more restrained. They typically involve variable-rate lending, market-making, or supplying liquidity to blockchain protocols — not outright speculation. The Steakhouse USDC vault, for instance, lends stablecoins against what it describes as blue-chip crypto and tokenized real-world assets, offering returns around 3.8%. Many vaults are deliberately unexciting: their draw is not outsized returns, but the promise of earning yield on digital cash without surrendering custody or turning users into creditors of a single firm.
“People want yield,” said Jonathan Man, portfolio manager and head of multi-strategy solutions at Bitwise, which just launched their first vault. “They want their assets to be productive. And the vault is just another way to deliver that.”
Vaults could also gain traction if regulators move to ban yield payments directly on stablecoin balances — a proposal floated in market-structure legislation. If that happens, the demand for yield won’t vanish. It will simply move.
“Every fintech, every centralized exchange, every custodian is speaking with us,” said Sébastien Derivaux, co-founder of Steakhouse Financial, one of the vaults curators. “So are traditional financial companies.”
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But restraint isn’t hard-coded. The pressure shaping this sector is competitive, not technological. As stablecoins proliferate, yield becomes the main way to attract and retain deposits. Curators who underperform risk losing capital. Those who deliver higher returns pull in more flows. Historically, that dynamic has pushed non-bank lenders — crypto or otherwise — to loosen standards, add leverage, or shift risk off-platform. That shift is already reaching large, consumer-facing platforms. Crypto exchanges Coinbase and Kraken both have launched products that offer retail customers access to vault-style strategies with advertised yields of up to 8%.
All told, transparency can be deceptive. Public data tools and visible strategies build confidence — and confidence attracts capital. But once the money arrives, curators face pressure to deliver returns, sometimes by reaching into off-chain deals that are harder for users to assess.
Stream Finance later exposed that fault line, after the platform — which advertised returns as high as 18% — reported heavy losses tied to an unnamed external fund manager. The episode triggered a sharp pullback across the vault sector, with total assets falling from a peak near $10 billion to around $5.4 billion.
Supporters of the model say Stream was not representative. Stream Finance did not respond to requests for comment via X direct messages.
“Celsius, BlockFi, all of those things, even Stream Finance, I kind of lumped them all together as really a failure of disclosure to the end user,” said Bitwise’s Man. “People in crypto are always more fixated on what the upside could be and not so focused on what the downside is.”
That distinction may matter, for now. Vaults are being built in response to the last wave of failures, with the explicit goal of making risk visible rather than hidden. The open question is whether visibility alone is enough to discipline behavior — or whether, as in previous episodes of shadow banking, clearer structures simply make it easier for investors to stomach risk until the music stops.
“At the end of the day, it’s about embracing transparency, but also having the appropriate disclosures for any type of product, whether it’s DeFi or non-DeFi,” Man said.
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