Crypto lending vaults now hold more than $10 billion in deposits, up from $4 billion at the start of last year. Curators run the strategies, while collateral, liquidity and smart-contract risks have drawn the attention of U.S. and European regulators.
Crypto lending vaults have attracted more than $10 billion in deposits, according to the Financial Times, as investors seek returns on their digital assets. Deposits stood at $4 billion at the start of last year, which points to growing demand for strategies that put stablecoins and other tokens to work.
Each vault runs on a smart contract on a decentralized finance platform and has a "curator", effectively an investment manager. The curator selects lending strategies, sets risk limits and collects fees. Returns typically range from 3% to 10%, although riskier strategies can generate as much as 20% or more.
Collateral and liquidation risks
The yields come with risks. Loans can be backed by illiquid tokens, crypto-backed stablecoins or tokenized private credit, which leaves depositors exposed if collateral loses value or becomes difficult to sell. Automatic liquidations can intensify market declines, while hacks, coding errors and flawed pricing mechanisms create additional vulnerabilities.
Fintech companies, digital asset treasury businesses and hedge funds are among the main depositors, according to the article. Bitcoin-backed lender Two Prime is among the firms entering the market. In September, it rolled out a bitcoin lending vault on Pareto targeting annual yields of 1.5% to 2% through institutional lending.
Regulators examine whether existing rules apply
Regulators are now examining whether existing rules should apply. The U.S. Securities and Exchange Commission has raised questions about vaults holding securities, while European regulators have proposed oversight of intermediaries providing access to DeFi.
Source: CoinDesk
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