Coin Metrics explained in a blog post that on-chain vaults have solidified their role as essential infrastructure for yield generation and capital allocation. According to Coin Metrics’ latest State of the Network report, these tools function much like professionally managed funds or structured products, yet they operate entirely through non-custodial smart contracts. They pool deposits from users and automatically deploy them into lending protocols, staking arrangements, tokenized real-world assets (RWAs), or delta-neutral strategies, all while maintaining full transparency and composability.
Coin Metrics pointed out that at the center of this innovation lies the ERC-4626 token standard, introduced in 2022.
This uniform interface standardizes deposits, withdrawals, share issuance, and accounting across different protocols.
When users deposit assets such as USDC or WETH into a vault, they receive proportional shares.
As the underlying strategy generates returns—whether from interest, funding rates, or other yields—the exchange rate between shares and assets improves.
For instance, a deposit made at a 1:1 ratio appreciates over time without changing the number of shares held, allowing seamless redemption for principal plus accrued gains.
This mechanism eliminates the need for custom code and enables vaults to integrate seamlessly across the decentralized finance (DeFi) ecosystem.
The vault landscape has expanded dramatically alongside the growth of productive on-chain assets.
Interest-bearing stablecoins represent the most widely adopted category, with Sky’s sUSDS and Ethena’s sUSDe together surpassing $9.4 billion in supply.
sUSDS operates as a savings product, channeling funds into a mix of RWAs, stablecoin lending, and over-the-counter opportunities via the Spark protocol to deliver steady, low-volatility returns.
In contrast, sUSDe employs a delta-neutral hedging approach, capturing funding rates across crypto perpetuals and RWAs while expanding collateral to include institutional lending and liquid assets.
Their supply dynamics differ notably: sUSDS shows resilient, diversified growth, while sUSDe fluctuates with broader market funding conditions.
Beyond stablecoins, curated lending platforms like Morpho have scaled to more than $11.5 billion in deposits.
Here, specialized curators—such as Gauntlet, Steakhouse Financial, and even traditional asset managers like Bitwise—act as on-chain portfolio strategists.
They define risk parameters, approve collateral, set loan-to-value ratios, and allocate capital across isolated markets.
Major institutions have taken notice. For instance, Coinbase now offers BTC-backed loans through Morpho integrations, Kraken incorporates vault strategies into its DeFi Earn product, and Aave’s upcoming v4 upgrade shifts toward isolated, vault-centric markets.
Yet vaults are not without tradeoffs. Curators must actively manage three core risks. Liquidity risk arises when redemption demand exceeds available borrowing capacity, potentially locking users out.
Collateral risk materializes if volatile or illiquid assets trigger bad debt during sharp price drops, as seen in the March 2026 Resolv Labs incident that left multiple vaults with unbacked positions.
Oracle risk stems from manipulated or unreliable price feeds, exemplified by a brief depegging of sUSDe on centralized exchanges in October 2025 despite sound underlying collateral.
Sophisticated teams counter these threats with conservative parameters, multi-source oracles, and real-time monitoring.
As crypto adoption accelerates, on-chain vaults are poised to become the default layer for crypto asset management. Coin Metrics concluded in the research report that by blending capital efficiency with professional oversight in a permissionless environment, they aim tp bridge traditional finance principles with decentralized technologies.