The $6 Billion Stablecoin Wealth Management Business: Where Does the Yield Come From, and Where Does the Risk Go?

Original Author: Muyao Shen

Original Compilation: Shenchao TechFlow

Guide: The collapse of BlockFi and Celsius in 2022 plunged the crypto lending industry into a deep freeze. But now, a Vault model touting "transparency and non-custodial" features is making a comeback with $6 billion in assets under management.

This article delves into this new business model: how it uses smart contracts to avoid the black-box risks of traditional centralized lending, and how, under the pressure of pursuing high yields, it might repeat the fate of Stream Finance.

With the *Genius Act* pushing stablecoins into the mainstream, are Vaults the cornerstone of a maturing crypto finance system, or are they the next shadow banking crisis cloaked in transparency?

This article will reveal the old and new logic behind high yields.

Full text is as follows:

When the crypto platform Stream Finance collapsed at the end of last year (resulting in the loss of approximately $93 million in user funds), it exposed a familiar breaking point in digital assets: when markets turn, promises of so-called "safe yield" often crumble.

This failure was unsettling not only because of the losses incurred but also because of its underlying mechanism. Stream had positioned itself as part of a new generation of more transparent crypto yield products, designed to avoid the hidden leverage, opaque counterparty risks, and arbitrary risk decisions that brought down centralized lenders like BlockFi and Celsius in the last cycle.

Instead, it showed how quickly the same dynamics—leverage, off-platform risk exposure, and centralized risk—can return when platforms start chasing yield, even when the underlying infrastructure appears safer or the transparency more reassuring.

Yet, the broader promise of safer crypto yield persists. According to industry data, Vaults—on-chain investment pools built around this concept—currently manage over $6 billion in assets. Crypto asset management firm Bitwise predicts that assets in Vaults could double by the end of 2026 as demand for stablecoin yield grows.

Crypto's "Safe" Yield Trade Hits $6 Billion

At a basic level, Vaults allow users to deposit cryptocurrency into shared pools, where the funds are deployed into lending or trading strategies designed to generate returns. Where Vaults differ is in their marketing: they are pitched as a clean break from the opaque lending platforms of the past. Deposits are non-custodial, meaning users never hand over assets to a company. Funds sit in smart contracts that automatically deploy capital according to preset rules, with key risk decisions visible on the blockchain. Functionally, Vaults resemble a familiar component of traditional finance: pooled funds, transformed into yield, and providing liquidity.

But their structure is distinctly crypto. It all happens outside the regulated banking system. Risk isn't buffered by capital reserves or overseen by regulators—it's embedded in software, where algorithms automatically rebalance positions, liquidate collateral, or unwind trades to realize losses as markets move.

In practice, this structure can produce uneven results, as curators (the companies designing and managing Vault strategies) compete on returns, and users find themselves navigating just how much risk they're willing to bear.

"Some players are going to do terribly," said Paul Frambot, co-founder of Morpho, the infrastructure behind many lending Vaults. "They may not survive."

For developers like Frambot, this churn is less a warning sign and more a feature of an open, permissionless market—where strategies are tested in public, capital moves quickly, and weaker approaches are replaced over time by stronger ones.

The timing of its growth is no accident. With the passage of the *Genius Act*, stablecoins are moving into the financial mainstream. As wallets, fintech apps, and custodians race to distribute digital dollars, platforms face a common problem: how to generate yield without putting their own capital at risk.

Vaults have emerged as a compromise. They offer a way to manufacture yield while technically keeping assets off a company's books. Think of it like a traditional fund—but without handing over custody or waiting for quarterly disclosures. That's how curators pitch the model: users retain control of their assets while gaining access to professionally managed strategies that run automatically on-chain.

"The curator's role is akin to a risk and asset manager, like what BlackRock or Blackstone does for the funds and endowments they manage," said Tarun Chitra, CEO of crypto risk management firm Gauntlet, which also operates Vaults. "But unlike BlackRock or Blackstone, it's non-custodial, so the asset manager never holds the user's assets; the assets are always in a smart contract."

This structure aims to correct a recurring weakness in crypto finance. In previous cycles, products marketed as low-risk often hid borrowed funds, reused client money without disclosure, or leaned heavily on a few fragile partners. The algorithmic stablecoin TerraUSD offered yields approaching 20% by subsidizing returns. Centralized lenders like Celsius quietly funneled deposits into high-risk bets. When markets turned, the damage spread quickly—and without warning.

Today, most Vault strategies are more restrained. They typically involve floating-rate lending, market making, or providing liquidity to blockchain protocols, rather than pure speculation. The Steakhouse USDC Vault is one example, lending stablecoins against what it describes as blue-chip cryptocurrencies and tokenized real-world assets (RWAs), offering around 3.8% returns. Many Vaults are intentionally designed to be "boring": their appeal lies not in outsized returns but in the promise of earning yield on digital cash without handing over custody or making users creditors of a single company.

"People want yield," said Jonathan Man, portfolio manager and head of multi-strategy solutions at Bitwise, which just launched its first Vault. "They want their assets to be productive. Vaults are just another way to achieve that."

Vaults could also gain more momentum if regulators move to ban paying yield directly on stablecoin balances—a proposal floated in market structure legislation. If that happens, the demand for yield won't disappear; it will just shift.

"Every fintech company, every centralized exchange, every custodian is talking to us," said Sébastien Derivaux, co-founder of Steakhouse Financial, one of the Vault curators. "Traditional finance firms too."

But this restraint isn't hard-coded into the system. The pressure shaping the industry comes from competition, not technology. As stablecoins proliferate, yield becomes a primary tool to attract and retain deposits. Underperforming curators risk losing capital, while those offering higher returns attract more inflows. Historically, this dynamic has pushed non-bank lenders—in crypto and elsewhere—to loosen standards, add leverage, or shift risk off-platform. This shift has already touched large consumer-facing platforms. Crypto exchanges Coinbase and Kraken have both launched products giving retail clients access to Vault-like strategies, advertising yields as high as 8%.

In short, transparency can be misleading. Public data tools and visible strategies build confidence—and confidence attracts capital. But once money is in place, curators face pressure to deliver returns, sometimes by reaching for off-chain deals that users struggle to assess.

Stream Finance later exposed this breaking point, having advertised returns as high as 18% before reporting significant losses tied to an unnamed external fund manager. The event triggered a sharp industry-wide pullback, with total assets falling from a peak near $10 billion to around $5.4 billion.

Proponents of the model say Stream isn't representative. Stream Finance did not respond to a request for comment via X direct message.

"Celsius, BlockFi, all of those, even Stream Finance, I kind of lump them all together as failures of disclosure to the end user," said Bitwise's Man. "People in crypto always focus more on what the upside could be and less on what the downside risk is."

That distinction may matter for now. Vaults were built in response to the last wave of failures, with the explicit goal of making risk visible rather than hidden. The open question is whether transparency alone is enough to constrain behavior—or whether, as in previous episodes of shadow banking, a clearer structure simply makes it easier for investors to stomach risk until the music stops.

"At the end of the day, it's about embracing transparency, but also about having proper disclosure for any type of product—whether it's DeFi or non-DeFi," Man said.