what happens beyond the yield

In today’s newsletter, Nassim Alexandre from RockawayX takes us through crypto vaults, what they are, how they work and risk evaluation.

Then Lucas Kozinski, from Renzo Protocol, answers questions about decentralized finance in Ask an Expert.

– Sarah Morton

Understanding vaults: what happens beyond the yield

Capital flowing into crypto vaults surged past $6 billion last year, with projections indicating it could double by the end of 2026.

With that growth, a sharp split has emerged between vaults with robust engineering and controls and vaults that are essentially yield packaging.

A crypto vault is a managed fund structure deployed on-chain. An investor deposits capital, receives a token representing their share, and a curator allocates that capital in accordance with a defined mandate. The structure can be custodial or non-custodial, redemption terms depend on the liquidity of the underlying assets and portfolio rules are often encoded directly into smart contracts.

The central question around vaults is exposure: what am I exposed to, and can it be more than I am being told? If you can explain where the yield comes from, who holds the assets, who can change the parameters and what happens in a stress event, you understand the product. If you cannot, the headline return is irrelevant.

There are three risk layers worth understanding.

The first is smart contract risk: the risk that the underlying code fails. When was the last audit? Has the code changed since? Allocation controls sit here as well. Adding new collateral to a well-designed vault should require a timelock that allows depositors to see the change and exit before it takes effect. Strategy changes should require multi-signature approval.

The second is underlying asset risk: the credit quality, structure and liquidity of whatever the vault is actually holding.

The third underappreciated risk is redemption: under what conditions can you get your capital back, and how quickly? Understand who handles liquidations in a downturn, what discretion they have and whether the manager commits capital to backstop them. That distinction matters most in the exact moments you would want to leave.

The quality of a vault is largely dependent on the quality of its curation. A curator selects which assets are eligible, sets parameters around them and continuously monitors the portfolio.

For example, most real-world asset strategies on-chain today are single-issuer, single-rate products. A curated vault, by contrast, combines multiple, vetted issuers under active management, giving diversified exposure without managing single-name credit risk yourself.

Then there is ongoing monitoring. Default rates shift, regulations change and counterparty events happen. A curator who treats risk assessment as a one-time exercise is not managing risk.

What makes crypto vaults different from a traditional fund is transparency; investors don’t have to take the curator’s word for it. Every allocation, position and parameter change happens on-chain and is verifiable in real time. For advisors familiar with private credit, the underlying collateral may be recognisable. What requires attention is the on-chain structuring around it: whether you have genuine recourse, in which jurisdiction and against whom. That is where curator expertise matters. A curator is the risk manager behind a vault. They decide what assets are eligible, set the rules capital operates within, and actively manage the portfolio.

Curated vault strategies typically target 9-15% annually, depending on mandate and assets. That range reflects risk-adjusted return generation within defined constraints.

Vaults also allow a more efficient way to access assets you already allocate to, with capabilities that traditional structures do not offer. For family offices managing liquidity across multiple positions, this is a practical operational improvement.

The key one is composability. On-chain, a vault can allow you to borrow against a collateral position directly, without the documentation overhead of a traditional loan facility. For family offices managing liquidity across multiple positions, this is a practical operational improvement.

Permissioned vault structures are also noteworthy, as they allow multiple family offices or trustees to deposit funds into a single managed mandate without commingling, each retaining separate legal ownership while sharing the same risk-management infrastructure.

The vaults that survive this scrutiny will be the ones where the engineering, mandate, and curator’s judgment are built to hold under pressure.

– Nassim Alexandre, vaults partner, RockawayX

Ask an Expert

Q: With “yield-stacking” and many layers of decentralized finance (DeFi) protocols, what is needed to mitigate risk in vaults?

The first thing is minimizing complexity. Every additional protocol in the stack is another attack surface. So if you don’t need it, cut it. We won’t deposit into protocols that have discretionary control over funds — meaning they can move capital wherever they want without user consent. We want transparency about what other protocols are doing with our capital, but privacy around our strategies so others can’t see anything proprietary.

Beyond that, it comes down to transparency and time. Users should always be able to see exactly where their funds are and what they’re doing. And any parameter changes — fees, strategies, risk limits — should go through a timelock so people have a window to review and react before anything goes live. Smart contract audits matter too, but audits are a baseline, not a safety net. The architecture has to be sound before the auditor even shows up.

Q: At what point does institutional capital inflow compress DeFi yields to the level of traditional risk-free rates, and where will the next “alpha” be found?

It’ll happen eventually in the most liquid, simple strategies. But here’s what traditional finance (TradFi) can’t replicate: composability. The underlying instruments might be identical — take the USCC carry trade as an example — but in DeFi you can plug that same position into a lending market, use it as collateral, provide liquidity to a DEX pool and do all of that simultaneously. That’s not possible in TradFi without significant infrastructure cost.

The alpha won’t disappear. It’ll just move to whoever builds the most efficient capital pathways between strategies. The people who figure out how to stack yields across composable layers while managing risk properly will consistently outperform. And that gap between DeFi and TradFi infrastructure costs alone keeps the spread wide for a long time.

Q: How will the integration of Real World Assets (RWAs) into automated vaults change the correlation between crypto yields and global macro interest rate cycles?

Yes, crypto yields will become more correlated with macro as RWAs come in. That’s just the nature of bringing rate-sensitive assets on-chain. But I think people underweight the other side of that tradeoff.

Before RWAs, crypto holders had a binary choice: keep stables on-chain and earn crypto-native yields, or pull everything out and deposit into a brokerage. Now you can hold stables on-chain and access the same strategies you’d find in TradFi, without leaving the ecosystem. And crucially, you can layer on top of them — borrow against your RWA position, deploy that capital into a lending market, LP against pools that use these assets as collateral. The capital efficiency you get from that kind of setup is just not available in traditional finance. So yeah, more macro correlation — but also more optionality for where to deploy capital, which should push rates up over time as liquidity deepens.

– Lucas Kozinski, co-founder, Renzo Protocol

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