The Limits of Finance, the Value of Global Market Access

Written by: Zuo Ye

On-chain asset management vaults and channels

Asset management giants are showing increasing interest in on-chain Vaults, and the mainstreaming of the DeFi dream seems to be becoming a reality.

This is the best of times. BlackRock is buying $UNI tokens, Apollo has pledged to buy hundreds of millions of dollars worth of $Morpho tokens, and Wall Street is collectively bullish on the future of DeFi.

This is the worst of times. BlackRock, Blackstone, and Blue Owl are experiencing a wave of concentrated redemptions, and the founder of Aave warns that Wall Street is using RWA as a liquidity exit channel.

Crises always present rare opportunities to buy at rock-bottom prices. Faced with future asset price inflation, emerging forces are tempted, completely disregarding the iceberg ahead.

Regardless of what it's called—DeFi/RWA/Vault—on-chain finance must both accept the sugar coating and fight back. Only by skillfully breaking down an old world can a new Eden be built.

This sweet apple can even be visualized as the risk-free interest rate.

The dream of risk-free interest rates

We'll start with one question to anchor our discussion: Why doesn't DeFi have a risk-free interest rate yet?

Alternatively, it can be transformed into a linear narrative about how "US Treasury bonds" become the benchmark interest rate for DeFi.

Image caption: A Chronicle of Stablecoins

Image source: @zuoyeweb3

Starting with the DeFi Summer of 2020, repeated failures forged resilience:

• Starting in 2018, DAI, based on crypto assets, lacked economies of scale, and $USDS ultimately became a US Treasury bond certificate.
• Starting in 2021, $UST, based on Ponzi schemes, failed to weather the 2022 bank run crisis, and its story of rebuilding its former glory was abandoned.
• In 2022, following The Merge, stETH tokens faced a crisis of faith in PoS, and Pendle ultimately abandoned LST in favor of USDe.
• In 2023/24, CDP stablecoins issued by DeFi giants such as Aave and Curve were not recognized by other protocols.
• In 2025, the market once thought that Ethena's $USDe was unique and would revive on-chain glory, but interest-bearing stablecoins eventually diverged into deposits and interest-bearing activities, and did not challenge the dominance of USDT/USDC in their respective fields.

The facts are very clear: it is not USDT that has eroded users' profits, but rather that DeFi has chosen the scale effect of USDT/USDC.

By exchanging the profits generated from $300 billion in government bonds for the trading foundation of the entire market, DeFi and the crypto market cannot be considered to have lost out.

But what is the cost?

The cost is not the evil that interest-bearing stablecoin challengers claim Tether takes away profits, or the selfishness that Coinbase and Donald Trump Jr. accuse the banking industry of banning interest-bearing activities.

The bitter fruit of DeFi is that US Treasury bonds, as a risk-free interest rate, are transmitted to the blockchain through stablecoins. However, US Treasury bonds are assets of the US government, and its actions do not care about the feelings on the blockchain.

This is also the root cause of the collapse of token economics. UNI relies on A16Z, A16Z relies on US dollar financing, and the US dollar is the embodiment of US Treasury bonds. UNI is just relying on the fourth derivative of US Treasury bonds, so why not just buy US Treasury bonds directly, without any middlemen making a profit?

US Treasury bonds are the de facto benchmark for DeFi, but DeFi can only passively bear the burden and cannot interact with them in both directions, which is the root of all happiness or suffering.

Image caption: Comparison of annualized yields of on-chain stablecoins and US Treasury bonds.

Image source: @BarkerMoneyX

The effort to save DeFi has never stopped. Despite the collapse of token economics and the breakdown of DAO governance structures, the overall direction of DeFi remains clear:

1. Fixed-rate investment and financing, a recognized risk grading system, and unsecured credit lending –> the next stage of the market's main theme, which contains some form of universally accessible product;
2. The expansion phase of public chains, exchanges, and DeFi protocols has ended, and the new application form is categorized as Vault. It is not yet certain that Vault will become a product for everyone, but this is the starting point of a new phase.

It's important to note that public blockchains and exchanges are no longer central to value capture; this doesn't mean they've reached zero or that their asset price inflation period is over, followed by only linear, stable growth.

This also connects to the progressive relationship between UNI and US Treasury bonds. Aave/Morpho is closer to asset management itself. Their business doesn't have much narrative space, but it is indispensable to the industry.

The real star product must be Vault, which is based on public blockchains and DeFi protocols, is used by the public, is based on RWA decentralized assets, and has a mechanism that triggers asset price inflation.

To reach a wider audience, Curators have chosen to partner with exchanges. Morpho joined Coinbase through Stakehouse, while Aave expanded its user base to include USB cards like Metamask.

Based on RWA assets, Curator, in conjunction with institutional custodians such as Galaxy, is constantly shifting between crypto assets and real-world assets, such as Grove purchasing Galaxy's CLO bonds.

However, Vault, which lacks a mechanism to trigger price inflation, has failed to replicate its success, even though BlackRock's BUILD token was launched and Circle's USYC supports interest-bearing before this large-scale asset management on-chain implementation.

The fact that Vault doesn't have its own token isn't important. Asset price inflation is a mechanism; US stocks, real estate, bonds, tulips, graphics cards, and Mac Mini all have their own price fluctuation cycles. Currently, Vault only offers a black box for interest generation, but it hasn't solved two problems:

1. Where do high returns come from?
2. How should high risks be handled?

Towards a New Financial System

The crypto industry is evolving at an extremely rapid pace. Before this year, we never dared to imagine that the global financial system would actually be on the blockchain, but today it is undeniably happening.

Before the celebration banquet, RWA can only serve as a source of funding, Vault is still a boring deposit game, and various Curators have not demonstrated brand effect. White-label Vaults like Veda are highly similar to SaaS, while the operators Curators only earn management fees.

This is completely beyond the imagination of price inflation. If traditional asset management with a scale of $2 trillion is suffering from cyclical torment, it is hard to imagine that Vault can withstand it.

Image caption: Fund flow and value distribution

Image source: @zuoyeweb3

The move to blockchain for asset management is not driven by short-term emotions. In a sense, it is similar to the IOE (IBM, Oracle, EMC) of the banking industry. We cannot go back to the paper era. Spark has even started to uniformly calculate the margin adjustment of CEX/DEX positions. DeFi is becoming the next step for TradeFi.

Whether Vault will trigger the establishment of a risk-free interest rate after absorbing enough funds is the biggest point of contention in this cycle.

During the previous DeFi Summer, TVL was a decisive indicator, with the amount of funds mapping the token's wealth-generating potential. This led to mining activities that continued in the form of token mining, studios, and Binance Alpha. The core logic was that "project teams need more funds to support token growth."

However, for the first time, Vault faced the predicament of having a large demand for deposits but being unable to support its own token. Even though Morpho seized more market share from Aave, it could not trigger a surge in the token's price.

To elaborate further, Hyperliquid's market size and token price are significantly inverted compared to Binance, and Lighter's market size is significantly lower than Hyperliquid's. This represents an unprecedented shift in DeFi.

On the one hand, the old infrastructure continues to drain resources. For example, after the listing effect disappears, $BNB should decline, but the number of users on the centralized exchange is still much larger than the total number of users on the entire chain + DeFi. It is a very ironic fact that only exchanges have retail investors, while DeFi protocols such as Aave and Morpho have become the domain of a few professionals.

In this context, the high risks of Vault & Curator stem from its code and structure:

• The programming language used for Curve's immutable contracts has issues, so the xUSD team is issuing additional tokens themselves.
• Aave ended the facade of harmony between the DAO and the development team; Re7 dealt a heavy blow to the credibility of on-chain asset management.

In this context, what is the source of Vault & Curator's high returns?

I know it's not regulatory arbitrage, HLP fees, or token incentives, but many people still cling to these three factors, believing that the compliance of traditional finance has built a reputation that makes it too big to fail.

Completely forgetting that token economics has already failed, while Vault's deposits continue to grow, Sky has been deeply integrated into the Morpho system, and the future of Aave V4 is also one of institutionalization and modularization in parallel.

Furthermore, this article has consistently emphasized that Vault's funding size has not triggered any price inflation mechanism, which is Vault's structural dilemma.

The benefits of a Vault essentially come from the trading efficiency of the global market. If a CEX does not provide a certain Vault, then it can be configured on-chain. The personalized Curator is just right for dealing with all sorts of people.

Even in global markets like the US stock market, TradFi faces lengthy account opening and trading times and process restrictions. It's not fair to say that the gradual opening of 24/7 trading in the US stock market and the on-chaining of DTCC are also for arbitrage purposes, is it?

The final question is: what mechanism can trigger asset price inflation, allowing the funds accumulated in Vault to create a legendary market dream rate?

In other words, what is Vault missing to address asset price inflation?

The lack of channels and mechanisms for capital coupling, coupled with Curator's personification, hinders the programmability of DeFi Lego.

Currently, CEXs serve as placeholders, remaining the fastest place for funds to intersect.

Just as Perp DEX evolved to seize market share from CEX contracts, RWA's funding sources are also vying for CEX market share.

CEXs only have existing users; they can't even solve the problem of attracting new users themselves, let alone help Vault expand to hundreds of millions of users. Vault started by manufacturing cars under a different brand, and in the future, it will have to build its own super factory.

I suspect the channel will take the form of some kind of broker product.

With a high degree of social division of labor, exchanges, which are super apps that integrate deposits and withdrawals, trading, custody and clearing, will gradually operate in separate sectors. Binance, in the Abu Dhabi ADGM compliance framework, is an example of this three-part division.

This would fundamentally improve the professionalism of fund handling, while leveraging the unified ledger system of blockchain, and requiring the central coordination of Vault & Curator.

Referring to Neobrokers such as Robinhood and Trade Republic, attracting younger, retail users to participate in professional trading, and then building asset management and wealth management businesses, the model of using stablecoins as the front end and Curator to manage the Vault is more efficient.

In short, Binance monopolizes the flow of funds, BNB receives the strongest empowerment, and Brokers are responsible for fund interaction. Some asset forms, or even pure business flows, are profitable enough, after all, Robinhood is just a small shell of a highly profitable market maker.

Conclusion

The suspension of private lending and RWA cycles, and the rush to issue Document No. 402, have a prophetic feel to them. DeFi is not incapable of serving as a channel for liquidity exit, but rather lacks a mechanism for asset price inflation.

Asset management is similar to Aave/Morpho. Like public chains, it will eventually end its historical mission. They will exist for a long time, but only when the scale increases will the token price stabilize.

Vault & Curator are essentially star fund managers who are rapidly acquiring customers and monopolizing the market. There are already initial signs of them becoming giants, but their ability to continue capturing value is highly questionable.

The channel ≈ CEX (temporary), which actually has the most room for innovation and facilitates the freedom of funds, will always receive the highest rewards.

A highly efficient global market is operating on public blockchains that do not require traditional tokens. This is a question for the next era, and everyone must answer it.