US-based BitGo, a crypto custody and infrastructure provider, has unveiled plans for a decentralized finance (DeFi) vault product with Paris-based Morpho as its first partner, to meet institutional demand for access to onchain lending and yield strategies while providing regulated custody and supervision.
When customers deposit into the vault, their funds are deployed to a third-party onchain strategy, according to a June 22 statement. BitGo Bank & Trust, the company’s national trust bank chartered by the U.S. Office of the Comptroller of the Currency (OCC), maintains a receipt documenting each customer’s claim. Third-party infrastructure providers and independent risk managers will execute the strategies and determine the risk parameters, with BitGo acting as custodian.
Morpho Labs, which is developing the protocol, will provide the underlying vault architecture, credit infrastructure and onchain execution systems that address increasing institutional interest in yield and onchain lending opportunities.
The storage layer addresses the concerns
However, institutions have been cautious about DeFi due to concerns over regulatory compliance around custody and asset control. The new service adds a layer of custody to users’ assets to address these concerns.
“We believe institutions are looking for ways to access onchain capabilities, but also expect the security and oversight that comes with institutional custody,” said Mike Belshe, CEO and co-founder of BitGo. Founded in 2013 by Belshe and Ben Davenport, the company built its early business around multi-signature wallet security for institutional crypto holders.
Previously, BitGo integrated with Blueprint Finance’s Concrete protocol, allowing customers to route assets to third-party onchain protocols while keeping them in qualified custody. The Morpho vault follows the same structure, with all returns generated by third-party vault and protocol activity rather than by BitGo or its trust bank.
Morpho’s institutional partners
The third-party approach is a way to package DeFi for institutions, using third-party specialists for the parts of the stack that are better handled by companies with direct protocol expertise. This also allows BitGo to reduce operational and counterparty risk and avoid the costs and inefficiencies associated with recreating an internal system.
Morpho, which according to its statement has more than $11 billion in deposits, counts Coinbase, Bitwise Asset Management and Société Générale as integrator partners, institutions that build products on top of Morpho’s protocol.