In today’s newsletter, RockawayX’s Nassim Alexandre takes us through crypto vaults, what they are, how they work and risk assessment.
Then Lucas Kozinski, from Renzo Protocol, answers questions about decentralized finance in Ask an Expert.
-Sarah Morton
Understanding Vaults: What Happens Beyond Revenue
Capital flowing into crypto vaults soared above $6 billion last year, and projections suggest this could double by the end of 2026.
With that growth, a sharp divide has emerged between safes with robust engineering and controls, and safes that are essentially yield packages.
A crypto vault is a managed fund structure that is deployed in the chain. An investor deposits capital, receives a token representing their stake, and a trustee allocates that capital in accordance with a defined mandate. The structure can be custodial or non-custodial, the repayment terms depend on the liquidity of the underlying assets, and portfolio rules are often coded directly into smart contracts.
The central question surrounding safes is exposure: what am I being exposed to, and could it be more than I’m told? If you can explain where the returns come from, who owns the assets, who can change the parameters and what happens in a stress event, you understand the product. If you can’t do that, the headline return is irrelevant.
There are three layers of risk worth understanding.
The first is the smart contract risk: the risk that the underlying code will fail. When was the last audit? Has the code changed since then? Allocation controls are also here. Adding new collateral to a well-designed vault would require a time slot that would allow depositors to see the change and exit before it takes effect. Strategy changes should require multi-signature approval.
The second is the underlying asset risk: the credit quality, structure and liquidity of everything the vault actually holds.
The third undervalued risk is repayment: under what conditions can you get your capital back, and how quickly? Understand who handles liquidations in times of recession, what discretion they have and whether the manager is providing capital to absorb them. That distinction is most important at the exact times you would like to leave.
The quality of a vault largely depends on the quality of its curation. A curator selects which assets are eligible, sets preconditions and continuously monitors the portfolio.
For example, most real-world asset strategies deployed on-chain today are single-issuer, single-rate products. A managed vault, on the other hand, combines multiple, vetted issuers under active management, creating diversified exposure without having to manage credit risk on a single name yourself.
Then there is continuous monitoring. Standard rates shift, regulations change and events happen to counterparties. A trustee who views risk assessment as a one-time exercise is not managing risk.
What makes crypto vaults different from a traditional fund is transparency; investors don’t have to take the trustee’s word for it. Every assignment, position and parameter change takes place in the chain and is verifiable in real time. For advisors familiar with private credit, the underlying collateral may be recognizable. What requires attention is the chain structure surrounding it: whether you actually have recourse, in which jurisdiction and against whom. That is where the expertise of curators is important. A curator is the risk manager behind a safe. They decide which assets qualify, determine the rules within which the capital operates and actively manage the portfolio.
Curated vault strategies typically target 9-15% per year, depending on mandate and assets. That range reflects generating risk-adjusted returns within defined constraints.
Vaults also provide a more efficient way to access assets you already have assignments to, with capabilities that traditional structures don’t offer. For family offices that manage liquidity across multiple positions, this is a practical operational improvement.
The most important one is composability. On-chain, a vault allows you to borrow directly against a collateral position, without the documentation overhead of a traditional lending facility. For family offices that manage liquidity across multiple positions, this is a practical operational improvement.
Permitted vault structures are also notable because they allow multiple family offices or trustees to deposit money into a single managed mandate without mixing, with each retaining separate legal ownership while sharing the same risk management infrastructure.
The vaults that survive this investigation will be the vaults in which the technology, mandate and judgment of the curator are built to remain under pressure.
– Nassim Alexandre, vault partner, RockawayX
Ask an expert
Q: What will it take to mitigate risk in vaults, with yield stacking and the many layers of decentralized finance (DeFi) protocols?
The first is to minimize complexity. Each additional protocol in the stack is a new attack surface. So if you don’t need it, cut it off. We don’t fund protocols that have discretionary control over funds – meaning they can move capital wherever they want without user consent. We want transparency about what other protocols are doing with our capital, but privacy around our strategies so others can’t see anything that’s proprietary.
In addition, it comes down to transparency and time. Users should always be able to see exactly where their money is and what they are doing. And all parameter changes – fees, strategies, risk limits – must go through a time slot, so people have time to review and react before anything goes live. Smart contract audits are also important, but audits are a baseline and not a safety net. The architecture must be in order before the auditor even shows up.
Question: At what point will institutional capital inflows compress DeFi rates to the level of traditional risk-free rates, and where will the next “alpha” be found?
It will eventually happen in the most liquid, simple strategies. But here’s what traditional finance (TradFi) can’t replicate: composability. The underlying instruments may be identical – take the USCC’s carry trade as an example – but in DeFi you can plug that same position into a credit market, use it as collateral, provide liquidity to a DEX pool, and do it all at the same time. This is not possible in TradFi without significant infrastructure costs.
The alpha will not disappear. It simply goes to whoever builds the most efficient capital pathways between strategies. The people who figure out how to stack returns across layers while managing risk appropriately will consistently outperform. And that gap alone between the infrastructure costs of DeFi and TradFi ensures that the spread remains large for a long time.
Question: How will the integration of Real World Assets (RWAs) into automated vaults change the correlation between crypto returns and global macro interest rate cycles?
Yes, cryptocurrency returns will become more correlated with macro numbers as RWAs come in. That is simply the nature of bringing price-sensitive assets into the chain. But I think people underestimate the other side of that trade-off.
Before RWAs, crypto holders had a binary choice: hold on-chain stables and earn crypto-native returns, or take it all out and deposit it into a brokerage. Now you can hold stables on-chain and access the same strategies you would find in TradFi, without leaving the ecosystem. And crucially, you can get on top of that: borrow against your RWA position, deploy that capital into a credit market, and LP against pools using those assets as collateral. The capital efficiency you get from such a setup is simply not available in traditional financing. So yes, more macro correlation – but also more discretion in deploying capital, which should push rates higher over time as liquidity deepens.
– Lucas Kozinski, co-founder, Renzo Protocol
Keep reading
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- A Carrefour Express supermarket in France is offering a 20% discount to customers who pay with bitcoin.
- While the price of bitcoin remains low, other crypto company stocks are performing well.