# The Vaultification of Finance

> The evolution of Vaults as the infrastructure layer of institutional finance onchain

- Source: https://castlelabs.io/research/reports/vaultification-of-finance
- Published: May 2026, 76 pages; data as of May 2026
- Authors: Francesco, Noveleader
- Publisher: Castle Labs (https://castlelabs.io)
- Full PDF (free, email required): https://docsend.com/view/r3278hmn8d6tqyqn

## Thesis

Vaults have moved beyond simple yield wrappers into an allocation layer for lending, staking, curated risk, real-world credit, perpetual liquidity and options strategies. The report tracks the standards, curator model, institutional distribution and risk controls behind that shift, using eight distinct vault categories rather than treating the market as one pool.

## Key findings

- Net TVL across the eight defined vault categories was $120.4 billion, down roughly 50% from its October peak.
- RWA vaults grew 37.8% during the report's stress window while every other category declined.
- Three curators controlled 75% of the $6.5 billion risk-curated vault category, showing how concentrated onchain allocation remained.

## Key numbers

- $120.4B: Net vault TVL across eight categories
- +37.8%: RWA vaults during the stress window, the only category to grow
- 75%: Of curated TVL held by just three curators
- $7.5B+: Morpho TVL — the curator model's proof point
- $200M: Kraken DeFi Earn deposits in two weeks
- $1B+: BTC-backed loans issued through Coinbase

## What Is a DeFi Vault?

A DeFi vault is a smart contract that pools deposits and runs a yield strategy on the depositors' behalf: lending, staking, delta-neutral trades, real-world credit or options. Depositors receive a share token whose value tracks the vault's assets. Since ERC-4626 went live in March 2022, almost every yield-bearing vault uses the same 16-method interface, and ERC-7540 (October 2023) added asynchronous deposits and redemptions for assets that settle offchain, such as tokenised credit.

We count a product as a vault when users access an active yield-generating strategy through it. Maple's syrupUSDC, Lido's stETH and Centrifuge's JAAA qualify; BlackRock's BUIDL, a 1:1 claim on an offchain Treasury fund, does not. On that definition, eight vault categories held $120.4 billion of net TVL in May 2026, down about 50% from a $241 billion peak in October 2025.

**The eight vault categories, May 2026**

| Category | How it earns | Largest examples |
| --- | --- | --- |
| Lending | Interest from borrowers | Aave, Morpho ($7.5B+), Spark, Fluid, Kamino ($1.6B+) |
| Liquid staking | Proof-of-stake rewards ($42.4B category) | Lido ($21.8B), Binance Staked ETH ($8.9B), Rocket Pool ($1.2B) |
| Restaking | Extra rewards for securing other services ($20.6B category) | EigenCloud ($7.8B), EtherFi ($5.7B), Kelp DAO ($1.6B) |
| Risk-curated | Curator-managed lending portfolios (~$6.5B) | Sentora ($1.85B), Steakhouse ($1.63B), Gauntlet ($1.5B) |
| Infrastructure and yield optimisers | Multi-strategy allocation across DeFi | Veda ($1B), Upshift ($380M), Fluid Lite ($164M) |
| RWA credit | Offchain credit and Treasury yield | Maple ($2.1B), Centrifuge ($1.6B), Anemoy ($1.1B), Re ($263M) |
| Perpetual LP | Taking the other side of perp traders | Jupiter JLP ($715M), Hyperliquid HLP ($396M), Drift, GMX, Ostium |
| Options | Selling options premium via RFQ | Rysk (~$56M), Derive V1 vaults (~$2.4M) |

Source: Castle Labs, The Vaultification of Finance (May 2026), from DeFiLlama and protocol data

## What Is a Vault Curator?

A curator is the risk manager who decides where a vault's deposits go. Morpho made the model mainstream in 2024: Morpho supplies isolated lending markets and the vault blueprint, and curators choose the markets, set supply caps and rebalance. Morpho Vaults V2 splits the job into four roles (owner, curator, allocator and sentinel) and adds gating such as KYC, minimum balances and wallet-age checks.

Curation is concentrated. Three curators held 75% of the ~$6.5 billion risk-curated category, and fees are far below TradFi: Steakhouse, the top curator by revenue, earned about $3 million a year on $2.13 billion of AUM, roughly 0.14%. Most curator revenue is performance-based, which rewards yield and can push allocations toward riskier markets.

**Largest risk curators, May 2026**

| Curator | TVL |
| --- | --- |
| Sentora | $1.85B |
| Steakhouse | $1.63B |
| Gauntlet | $1.5B |

Source: Castle Labs, The Vaultification of Finance (May 2026)

MEV Capital and Re7 peaked at $1.49 billion and $830 million before the Stream Finance collapse in November 2025. After the KelpDAO hack, KPK (+159.6%) and Gauntlet (+42.7%) still took net inflows.

## Morpho vs Aave: Curated vs Pooled Lending

Aave runs pooled markets where assets share risk; Morpho runs isolated markets aggregated into curated vaults, so a problem in one market stays in that market. In the words of Morpho's co-founder, "Aave is a bank, whereas Morpho is an infrastructure for banks." Aave V4 moves toward modularity with spokes on a shared liquidity hub, but its governance still approves each spoke, while Morpho is permissionless.

The KelpDAO rsETH hack in April 2026 showed the difference. Aave lost over $12 billion of TVL and the Aave-to-Morpho TVL ratio fell from 5 to 6 times to below 2. Morpho reached over $7.5 billion of TVL, with Base growing from $604 million to over $2.8 billion, and about 40% of its USD TVL in Coinbase's cbBTC.

## Data tables

**Major vault incidents and what they exposed**

| Incident | Date | What happened | Risk it exposed |
| --- | --- | --- | --- |
| Venus donation attack (zkSync) | March 2025 | About $700K of wUSDM exploited by inflating an ERC-4626 share price | Smart contract |
| JELLY on Hyperliquid HLP | March 2025 | Manipulated memecoin position forced onto HLP; manual delisting avoided a loss of more than $13M | Counterparty |
| Stream Finance xUSD | November 2025 | $93M loss; oracle kept xUSD at $1 while it traded 70-80% lower, blocking liquidations | Oracle and liquidity |
| Aave wstETH oracle | March 2026 | A 3.3% oracle gap liquidated 34 healthy accounts for $27.78M in one block | Liquidation |
| Resolv USR | Between Oct 2025 and May 2026 | About 80M unbacked USR minted; bad debt hit 15 Morpho vaults (~$10M) and Fluid (~$21M) | Oracle |
| KelpDAO rsETH | April 2026 | Contagion through Aave looping; Aave lost over $12B of TVL | Rehypothecation and contagion |

Source: Castle Labs, The Vaultification of Finance (May 2026)

## Charts

- Vault TVL with key events, 2020 to 2026 (PDF page 11): Vault growth came in steps, each tied to an event: Yearn's launch, options vaults, the ETH Merge, FTX, Morpho Vaults, the HYPE airdrop, the October 2025 liquidation event, the Stream Finance blowup and the KelpDAO hack.
- Vault TVL by category (PDF page 33): Net TVL across the eight vault categories is $120.4 billion, down about 50% from a $241 billion peak in October 2025. The October liquidation event set off the decline.
- Vault TVL change by category since October 2025 (PDF page 34): Through Stream Finance, Resolv and the Kelp hack, RWA vaults gained 37.8% while every crypto-native category drew down. Their non-crypto exposure kept them uncorrelated.
- Morpho TVL by asset (PDF page 36): Aave is answering on institutional rails with Horizon, which has gathered over $340 million since launch. Spark, part of the Sky ecosystem, was among the biggest winners of inflows after the rsETH hack.
- EigenCloud TVL in ETH (PDF page 40): EigenCloud ($7.8 billion) leads restaking ahead of EtherFi ($5.7 billion) and Kelp DAO ($1.6 billion). Its TVL held flat in ETH terms for a long time, then fell after the Kelp hack as users withdrew.
- Risk curator TVL (PDF page 42): Risk-curated vaults hold about $6.5 billion. Sentora ($1.85 billion), Steakhouse ($1.63 billion) and Gauntlet ($1.5 billion) manage 75% of it.
- Risk curator market share (PDF page 43): Steakhouse expects concentration to follow the power laws of traditional asset management, where most assets sit with the leading managers, while the open arena keeps competition alive at the margin.
- Curator TVL growth after the KelpDAO hack (PDF page 44): Most curators lost deposits after the hack, but KPK (+159.6%) and Gauntlet (+42.7%) took net inflows: KPK from its new Morpho V2 vault, Gauntlet from its BSC expansion.
- Maple Finance active loans by token (PDF page 48): RWA vaults grew at a 231.3% compound annual rate over five years. Maple, the largest at $2.1 billion, grew almost 10x from the start of 2025 after Syrup opened its loans to retail through syrupUSDC and syrupUSDT.
- RWA TVL actively used in DeFi (PDF page 50): Looping a 4% to 5% Treasury yield two to three times over can return 7% to 12%, but only while borrowing costs stay near 1%. Volatile stablecoin rates and slow redemptions limit how far RWAs scale in DeFi.
- Hyperliquidity Provider (HLP) vault TVL (PDF page 53): Perp LP vaults are led by Jupiter's JLP ($715 million), Hyperliquid's HLP ($396 million), Drift, GMX and Ostium. HLP is down 30% from its $600 million peak, and deposits follow its variable yield.
- Ostium Liquidity Provider (OLP) vault TVL (PDF page 54): OLP is down about 50% from its peak. Ostium has since made OLP a senior tranche that never takes first loss, the opposite of HLP's design.
- DeFi TVL vs DeFi insurance TVL (PDF page 69): Insurance covers a sliver of DeFi: insurance TVL is 1.7% of DeFi TVL in Three Sigma's data. Vaults still lack a shared risk standard like the one ERC-4626 created for their interface.

## Questions

### How much is locked in DeFi vaults?

$120.4 billion of net TVL across eight vault categories in May 2026, down about 50% from a $241 billion peak in October 2025. The figure is higher than DeFi's total TVL of about $86 billion because vaults stack: stETH from a liquid staking vault is reused as collateral in lending vaults.

### Which vault category held up best in the 2025-2026 sell-off?

RWA vaults. From October 2025 to May 2026, through the Stream Finance, Resolv and KelpDAO incidents, RWA vaults grew 37.8% while every other category fell, because their yield comes from offchain credit and Treasuries rather than crypto collateral. RWA vaults have grown at a 231.3% compound annual rate over five years.

### What is ERC-4626?

ERC-4626 is the tokenised vault standard, proposed in December 2021 and live since March 2022. It gives every vault the same share-token interface (deposit, mint, withdraw, redeem and conversion functions), so protocols integrate one standard instead of writing an adapter per vault. ERC-7540 extends it with request-then-claim settlement for assets that cannot settle in one transaction.

### Who are the largest vault curators?

Sentora ($1.85 billion), Steakhouse ($1.63 billion) and Gauntlet ($1.5 billion) held 75% of the roughly $6.5 billion risk-curated vault category in May 2026. Curators charge far less than TradFi funds: Steakhouse earned about $3 million a year on $2.13 billion of AUM, around 0.14%.

### How do institutions use DeFi vaults?

Mostly through vault infrastructure rather than directly. Bitwise became a Morpho curator in January 2026; Kraken DeFi Earn, powered by Veda, took $200 million of deposits in two weeks; Coinbase uses Morpho for over $1 billion of BTC-backed loans; and Aave's institutional market Horizon has drawn over $300 million. Institutions want isolated risk, independent verification and compliance built into the vault.

### What are the main risks of DeFi vaults?

Seven recur: smart contract risk across the vault, base protocol and markets; curator risk; rehypothecation and contagion; counterparty risk; oracle failures; liquidity risk when markets hit 100% utilisation; and liquidation risk from oracle lag or cascades. Stream Finance's xUSD showed several at once: its oracle held a $1 price while the token traded 70-80% lower, blocking liquidations and leaving bad debt.

### How does RWA looping work?

A looper borrows stablecoins against tokenised Treasuries and redeposits them into the yield vault several times. A 4-5% Treasury yield looped 2-3 times can return 7-12%, but only while borrowing stays cheap, around 1%. The catch is exit time: with a 5x loop on an asset that redeems in two days, fully unwinding can take up to 10 days.

## Method

Castle defines a vault as an instrument through which users access an active yield-generating strategy. Pure wrappers of offchain assets are excluded. The report groups qualifying products into eight categories and compares TVL, curator concentration, stress performance and risk design.

## Sources

- [DeFiLlama protocol data](https://defillama.com/)
- [Morpho Vaults V2 documentation](https://docs.morpho.org/learn/concepts/vault-v2/)
- [Veda and Kraken DeFi Earn](https://veda.tech/blog/introducing-kraken-defi-earn-powered-by-veda)
- [Coinbase onchain loans dashboard](https://dune.com/ryanyyi/coinbase-onchain-loans)
- [RWA.xyz treasury data](https://app.rwa.xyz/treasuries)