Tiger Research: On-Chain Risk Operators – A Market Gap of 147 Trillion vs. 7 Billion USD

This report is written by Tiger Research. In the decentralized finance lending sector, the power of decision-making is shifting from protocol projects to professional entities that control risk management. The essence of entering this industry boils down to one choice: leveraging the analytical capabilities of others, exporting your own analytical capabilities, or building and controlling your own.

Key Takeaways

• Decentralized finance is giving rise to a new asset management role, and the era where protocols and community governance held absolute sway is over.
• The sector is still in its early stages, but capital flow and channel resources are rapidly consolidating around top-tier risk management teams. Their historical track record is becoming the core benchmark for institutional entry.
• There are three main paths for entering the industry: channel distribution (with the risk management team as backend support), asset sourcing (putting real-world assets on-chain), and independent operation (building your own team as a risk manager).
• The chosen entry path directly determines the entity's influence, required core competencies, and potential risks.
• The core decision for the industry isn't whether to enter DeFi, but how to divide responsibilities: which risk management decisions to outsource and which core powers to retain.

1. Risk Managers: Professional On-Chain Asset Management Service Providers

Traditional finance has long separated the responsibilities of decision-making and trade execution. As the crypto market matures, various specialized functions have formed their own dedicated professional operating entities.

Functional Division in Traditional Finance

• Asset Manager: The core decision-making center for capital operations, formulating overall investment strategies and issuing specific execution instructions to the custodian.
• Custodian: Responsible for the safe keeping of assets, strictly executing investment operations according to the manager's instructions, and overseeing asset security throughout the process.
• Channel Distributor: Sells fund products to investors, handling market fundraising and capital aggregation.

The crypto industry has evolved a corresponding functional system. Early DeFi relied entirely on smart contracts, but market practice has proven that code alone cannot fully prevent all potential on-chain risks. To ensure the smooth execution of on-chain lending, a group of professionals specializing in complex risk assessment and coordination emerged: risk managers. They have officially taken on the role of asset managers within the on-chain ecosystem.

2. Early DeFi Lacked Specialized Risk Control Roles

First-generation DeFi lending protocols like Aave and Compound deeply integrated lending infrastructure with risk control standards into a single architecture. Although some practitioners in risk management existed at the time, all assets on the network were pooled into a single liquidity pool. Practitioners could only act as global risk controllers for the protocol, fine-tuning overall risk parameters. Once highly volatile assets entered the pool, this single-pool structure was highly susceptible to risk contagion. Losses from a single inferior asset could quickly spread throughout the entire ecosystem, creating an urgent need for professionals to manage such cascading risks.

The industry landscape was completely rewritten with the advent of Morpho. This project split collateral asset types and lending terms into independent trading markets. It replaced the traditional single liquidity pool with a modular multi-vault architecture, completely restructuring asset operations. This fundamentally transformed the role of risk managers. Practitioners were no longer confined to passive risk control within a fixed protocol framework. External professional teams could now set their own risk rules and independently build and operate dedicated lending vaults. With the complete separation of underlying infrastructure and risk assessment authority, risk managers transitioned from being global protocol risk controllers to professional on-chain asset operators, independently managing multiple vault operations.

3. Current Landscape of Industry Leaders

As of May 2026, the global risk management sector manages approximately $7 billion in assets, with the top three teams commanding 70% of the market share. This sector only truly began its explosive growth in 2025, and capital is now rapidly concentrating on capable teams. The market strongly favors operators with a proven track record of practical execution.

The three leading teams each took different paths to enter the market:

1. Steakhouse: A conservative risk management firm, pioneering the compliant on-chain tokenization of high-quality Real-World Assets (RWAs) like US Treasuries as collateral. As Coinbase's exclusive backend risk management partner for its lending business, it enjoys top-tier traffic channels. With $1.53 billion in assets under management as of February 2026, it ranks first in the industry and is also instrumental in defining access standards for RWA collateral eligible for inclusion in the DeFi ecosystem.
2. Sentora: Built on AI-driven risk models and institutional-grade data systems, deeply integrated with Kraken exchange as a backend service provider, securing a stable channel for institutional capital inflow. It ranks second with $1.34 billion in AUM, focusing on bridging capital flows between exchanges and institutional clients.
3. Gauntlet: A veteran on-chain quantitative risk modeling firm, specializing in simulating various market risk parameters. In October 2025, it managed a sudden influx of $775 million in capital, rectifying unusual annualized yield anomalies within just 10 days. Its exceptional ability to manage large capital inflows and handle crises is widely recognized. Currently managing $1.29 billion in assets, it is the industry benchmark for stabilizing risks during large capital inflows.

Competition in the current phase has moved beyond mere asset scale. The core competitive battleground now consists of three key barriers: collateral access standards, capital distribution channels, and emergency risk response capabilities.

4. Traditional Asset Management Model vs. DeFi Risk Management System

Following Morpho's modularization of the market, different types of collateral assets require dedicated professional teams for independent assessment and control. Professional risk management teams like Steakhouse naturally entered the market as DeFi-specific risk managers, causing the operational model of DeFi to gradually align with mature traditional asset management processes.

From top to bottom, it's clear that the current underlying DeFi architecture has fully replicated the division of labor found in traditional finance:

1. Top Layer (Capital Raising & Distribution): Institutional investors are the primary source of capital. Vast amounts of funds flow into the on-chain ecosystem through major centralized exchanges and integrated service platforms, mirroring the functions of traditional financial brokers and capital distribution channels.
2. Middle Layer (Strategy Formulation & Risk Management): DeFi risk managers plan the overall capital operation model. This corresponds to portfolio managers and risk committees in traditional asset management, setting asset access thresholds, position limits, and defining the overall capital operation strategy.
3. Bottom Layer (Product Construction & Asset Custody): Using capital vaults as vehicles, management strategies are transformed into on-chain financial products for external investment. The underlying lending protocols handle asset storage and on-chain settlement execution, taking on the functions of traditional financial asset custody and trade clearing infrastructure.

From capital raising and strategy operations to asset custody and settlement, the entire operational process has fully benchmarked against the mature system of traditional finance. For traditional financial institutions, on-chain lending is no longer an unfamiliar, novel track but a standardized market with clear logic and a complete system, significantly lowering the barrier to entry for institutions.

5. Benchmarking Against Traditional Asset Management: Sector Opportunities

After on-chain lending adopted a traditional asset management-style division of functions, it officially opened its doors to various institutions. However, the barriers to entry differ significantly across different layers of the sector:

• Channel Distribution Layer: Faces the end-user market directly. Top crypto institutions have already established market dominance, making it highly cost-ineffective for traditional financial institutions to compete head-on.
• Strategy Management Layer (Optimal Entry Point): Core competition is based on professional financial analytical skills and talent reserves. Asset risk assessment, control, and product packaging are core businesses of traditional asset management. This layer doesn't require developing complex underlying technical systems. By leveraging mature modular infrastructure to implement their own risk control systems, institutions can quickly build a stable and profitable business model. This is the optimal entry point.
• Asset Custody & Infrastructure Layer: Focuses on blockchain technology R&D and implementation. It is a technology-intensive field with high requirements for underlying public chain development capabilities, making it extremely difficult for traditional financial institutions to build their own systems for entry.

Compared to tracks reliant on traffic resources or underlying technology, the barrier to entry is lowest at the strategy management and risk control layer. Traditional financial institutions can leverage their mature risk control systems, honed over years of experience, to quickly seize a dominant position in the industry.

Currently, institutional entry into DeFi mainly follows three models. Regardless of the chosen path, the core competitiveness remains the professional risk assessment capabilities of the risk management team.

5.1 Channel Distribution Model: Leveraging Professional Teams as Backend

This model involves leveraging an established external risk management team as a backend service to quickly capture market share. It is suitable for exchanges and fintech platforms that possess massive user traffic but lack their own on-chain risk control and operational capabilities. Under this model, the investment strategy is fully outsourced. However, the entity itself still bears the brand reputation risk and operational responsibility risk associated with the partner team. Centralized exchanges that have end-user traffic but prefer not to delve into the complexities of on-chain lending risk control commonly adopt this model: they partner with an authoritative, compliant external risk management team as a service backend to launch lending financial products. The platform is responsible for leveraging its own traffic to attract significant capital inflows, while collateral review and full-process risk management are entirely handled by the partner risk management team.

5.2 Asset Sourcing Model: Compliant On-Chain Tokenization of High-Quality Off-Chain Assets

This model involves asset management institutions holding high-quality underlying assets like Real-World Assets (RWAs) and credit assets directly supplying their existing assets to the on-chain market. Using Apollo as an example, while supplying assets on-chain, the institution also acquires governance tokens of lending protocols to deeply participate in setting industry collateral access rules favorable to its own assets. The core difficulty of this model lies in standardizing assets for compliance and establishing a comprehensive supporting regulatory system. Large private equity firms and institutions holding offline physical assets can directly connect their high-quality existing assets to the on-chain financial channel. Apollo goes beyond simple asset sourcing by increasing its holdings of governance tokens in leading lending protocols, deeply engaging in industry rule-making. This promotes its offline assets as officially recognized, compliant collateral that enjoys higher market acceptance and stronger risk control priority on-chain. However, asset providers cannot arbitrarily include any asset as collateral. The market requires professional third-party objective verification of the asset's true security, confirming it can be quickly and fully liquidated on-chain. This process is inseparable from the rigorous qualification review and credit endorsement provided by risk management teams. Ultimately, the long-term viability of the asset sourcing model still relies on the asset management institution's own professional risk control verification capabilities.

5.3 Independent Operation Model: Building Your Own Team as a Risk Manager (Example: Bitwise)

In this model, the asset management institution independently develops investment strategies and independently builds and operates its own dedicated on-chain capital vaults. Bitwise was the first to define its on-chain capital vault as a version 2.0 Exchange Traded Fund (ETF), marking a formal and deep entry into the sector. This model offers the highest autonomy over fee structures and collateral access standards. However, the institution fully bears all risks and losses generated from business operations. It is suitable for large asset management institutions that have built their own professional risk management teams. Traditional asset management institutions transitioning directly into independent risk managers without relying on an external platform are following this model. Bitwise leverages its mature portfolio construction system and risk control framework to independently design and fully manage its on-chain vault operations, directly earning stable management fees on-chain.

6. Industry Landscape on the Eve of Massive Traditional Capital Inflow

Looking at industry development trends, as the on-chain lending ecosystem continues to mature, traditional large-scale asset management institutions possess the strongest advantages for entering the industry. After the DeFi ecosystem completed its modular function split, the core market demand shifted: the industry no longer lacks smart contract development talent. Instead, it desperately craves the professional financial skills honed over decades in traditional finance, such as due diligence review of collateral and setting risk limits. The hands-on risk control experience accumulated by traditional asset management institutions over decades can be seamlessly adapted and migrated to on-chain financial scenarios.

However, the current overall market size of DeFi is still insufficient to accommodate the direct large-scale entry of the world's top-tier giant asset management institutions. The total size of the global traditional asset management industry is a staggering $147 trillion. BlackRock alone manages approximately $14 trillion in assets. In contrast, the entire DeFi market across all sectors is only about $80 billion, and the specific risk management sub-sector is just $7 billion—less than one two-thousandth of BlackRock's AUM.

This enormous disparity in size precisely indicates the immense growth potential of the sector. Institutional capital has always prioritized risk control, only entering mature markets with robust risk management systems. Once risk management teams establish a safe and stable on-chain capital flow system, accompanied by the formation of a supporting industry regulatory framework, the industry will undergo a qualitative change. Even a tiny diversion of capital from the $147 trillion traditional asset management market could quickly trigger explosive growth in the $80 billion DeFi market.

Many of these industry advantages exist only in the early stages of the sector's development. Currently, there are only a handful of top-tier global risk management teams. The large-scale entry of institutions urgently requires mature and complete industry operational rules. The teams that first build the underlying operational framework for the industry will firmly grasp the power to set industry standards. While institutions entering later will benefit from a more complete and more strictly regulated market environment, they will only be able to participate in market competition by following the established rules, missing the core influence and first-mover advantages of early positioning.