Crypto vault deposits pass $10bn as regulators weigh oversight

Key points

• Deposits grew from $4bn at the start of last year to more than $10bn, according to the Financial Times.
• Vault curators pick lending strategies, set risk limits and charge fees, with returns typically between 3% and 10%.
• Two Prime launched a Bitcoin lending vault on Pareto in September, targeting yields of 1.5% to 2% and requiring a 5 WBTC minimum.

Crypto vault deposits have topped $10bn as investors look for returns on their digital assets, the Financial Times reports. Deposits stood at $4bn at the start of last year, according to CoinDesk's account of that reporting.

The vaults run on smart contracts on decentralised finance platforms. Each has a curator acting much like a fund manager, choosing lending strategies, setting risk limits and taking fees. Typical returns run from 3% to 10%, though riskier approaches can reach 20% or more.

The yield comes with exposure. Loans may be secured by illiquid tokens, crypto-backed stablecoins or tokenised private credit, so depositors can lose out if collateral falls in value or proves hard to sell. Automatic liquidations can deepen market falls, and hacks, coding errors and faulty pricing add further hazards. The contracts are public, but investors may chase headline yields without grasping the underlying risk.

Two Prime, a Bitcoin-backed lender, entered the market in September with a vault on Pareto aimed at annual yields of 1.5% to 2% through institutional lending. It takes wrapped Bitcoin, needs a minimum of 5 WBTC and has about $10m of Two Prime's own capital committed to absorb early losses. The SEC has asked whether vaults holding securities fall under its rules, while European regulators have proposed supervising intermediaries that provide access to DeFi.

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