How Do Vaults Go From $10b To $100b? - TOKEN2049 Singapore 2025

I think when when I was kind of thinking about this panel, I was kind of reflecting on like the history of vaults. And I think many of us have been around in crypto for, you know, many many years, maybe remember and kind of this original generation of vaults of, you know, just sort of very simple yield farming, totally onchain, automated. Now, it seems like more and more I look at stuff like HLP, I look at stuff like uh, you know, JLP and a lot of these other sort of bolts that are coming out. What what do you think is like the biggest difference of between sort of this older generation of vaults and like newer generation of vaults like why are we even having this panel in 2025 versus you know 2020? I kind of think of the original vaults like DeFi summer era vaults like the urine pickle whatever like that whole copy pasta fork era was really focused on just aggregation which is take a bunch of capital there's a bunch of yield sources aggregate them give it to you as like a single package um I think those vaults obviously were also not really managed uh in a lot of ways they were purely onchain smart contracts there was no parameter updates and you would have these crazy things like pickle finance where it would be like promising you x 100% APY but you couldn't withdraw because they were had you know didn't do any liquidity management so like there was no there's no available assets like there's duration risk that wasn't mentioned I think since kind of 2020 vault have kind of evolved into having a bunch of different atomic units so I would call the sort of some sets vaults that are what I call like primitive vaults.

Those are vaults where they are actually the source of the yield. So you know in the case of lending protocols things that are matching borrowers and lenders and charging a fee. That is sort of the sense in which they are the source of the yield. They're not just aggregating other packages. Perpetual vaults it's a similar thing where they're sort of close to where the yield is actually being generated.

And then there's things that are aggregative. But I think what people have learned is a how to think about the risks, b how to think about liquidity management, which was sort of the death nail for the urines of the world where once people realize that you you know I put in a million dollars in and I can't withdraw for 6 months everyone was just like why am I using this right and I think we've evolved to a point where like the liquidity management risk management have evolved along the way. Um but yeah I I think that's sort of the natural evolution. Um uh I mean Cindy, you're one of the co-founders of Drift, One Lutters, Perpetual Dexes. Um you guys also, you know, more recently launched your own vault products which are now over 200 million TDL.

Congrats. Um what made you decide to want to launch vaults alongside Drift? How do you sort of see the two relating to each other?

So the reason we launched vaults was that there were a lot of high frequency traders in the game. Uh and then there are a lot of retail traders. There are also people who just want to deposit their assets into a vault uh where other hedge fund managers are already running. So we wanted to provide a simple way for users to one-click deposit into a product where they can rely on the risk management of somebody uh professional trading funds to be able to manage risk on top of them. I mean, you know, if you're running 20x leverage on the platform, that's one side of the business.

But, uh, the the bigger play is how can we actually make a onchain hedge fund that anyone can deposit into, earn, you know, up to 30% uh annualized and minimize the risk on on those products, right? And talking about the evolution of vaults, I think we started off by seeing only spot vaults where uh very simple products. It's like single asset um LST staking type of vaults. Now we're seeing really complex strategies pop up like depositing a yieldbearing token and then shorting the underlying perpetuals product on top of it to get a delta unusual product. Uh if you're somebody who's just click trading on an exchange, you wouldn't actually know how to manage your risk on all these fronts.

So, we built vaults as a simple way for people to get access to these strategies. Um, you know, you don't need much capital to to invest. You can invest with like $10, $100, but you get access to all of Terrun's u magic, right? Uh that you wouldn't be able to do on your own. So,

you're like you're like a matchmaker, you know? It's like capital, you talent, and you know, the beautiful couple together. Um, I guess to Louis and Kyle or fund managers, how do you guys think about how vaults relate to your business? Is this something where you're going and like actively managing and almost sort of taking in new LPS? Is it something that you know you guys are looking to deploy into or you looking to deploy into sort of vault protocols like like how do you sort of think about those different parts of of the ecosystem?

Yes. So I think I mean touching on the two points um that was discussed I think the landscape has changed and became better because of the universe of options that are available right I think back when DeFi started you know 2020 2021 liquidity farming you know yo farming was just lping into simple dex pools so it was one-dimensional but today with the tokenization of various assets RWA strategies the universe of opportunities became a lot more multi-dimensional and also greater magnitude. And one thing that I always um say to you know investors or liquidity providers when I'm talking about using money is today you can't just rock up and say hey I want to earn yield and defy and I'm just got to deposit one click and you know passively wait. Today's strategies are extremely complex like what Cindy said you know different types of layers of hedging you know you need to understand risks you know Gauntlet obviously does a really good job in terms of that as well and so the normal user is starting to get more and more marginalized and I think increasingly so strategies are starting to become more and more exclusive to sophisticated players and that's where you know vaults come into the picture as a form of one distribution and two also abstracting away a lot of the challenges and complexities of the product. So as a business, you know, how I see it is it's obviously quite integral in the ecosystem.

It help us usher in um the liquidity that fits the different parts of the spectrum in terms of you know, be it duration, be it risk, be it simplicity and help us overall actually grow the ecosystem. Yeah.

Yeah. So I guess um I have a bit of a different take uh because we're actively managed liquid hedge fund. We don't do any of strategies ourselves. But I think where vaults come in is because um when you have spare cash uh which is very common if you're active manager it's actually really really useful to get yield on top of that whether it's in vault or like um in Cindy said the delta neutral strategies. So for example Athena launched Binance earn they have like 12% on Binance.

I I don't know if you would classify that as a fault, but I think the product itself where you have a delta neutral stable coin that gives you 12% for holding uh SUSD while you wait for the opportune time to go long on a perfect setup is actually a really really good way to generate yield on top of your returns, which I think um is actually really underappreciated in this industry because like you have a lot of funds and you have a lot of money that sometimes sits on the sidelines and they don't know what to do with it that the emergence and the the advancements of vaults have actually I believe uh provided um stable coins and the spare cash and avenue to deploy in. So personally I benefit like we benefit from it a lot and yeah

yeah you made a good point around you know how do you sort of draw the line between like a vault and like a stable coin and maybe like almost like a fund. I I maybe they're all kind of one in the same you know kind of feeling the elephant. I I don't know how you guys sort of think about it or how you maybe think about positioning. I know uh you know Louis obviously working on Yuzu which is a new sort of yield bearing stable coin but also looks vault-like in some ways. I I don't know how you guys think about it.

Th

this is a good question. And I think when I talk about yuzu, this is pub tree frequently asked questions which is why a stable coin and not evolve, right? And I would say that the number one answer that I give is the composability of certain things, right? Um with a stable coin, you can suddenly do a lot of stuff. Obviously, you can call it like a tokenized bolt in a way where you know users can take it if you're hyperen hyperaggressive, leverage it up 10x, right?

If you want to risk trench it, you can you can bring it to pendo. You can do many things with it. So suddenly the I think spectrum of users that you can cater to can go from the extremely conservative guy that just wants 10% has various layers of you know liquidity buffers and protection and just cares about you know security all the way to the hyperden guy that goes like 10x leverage you know um to the hilt um just on like 1% health factor and and so you're able to cater to the entire spectrum of I think risk users and I think That's what differentiates a vault and a stable coin.

I mean also maybe on the topic of risk I mean Tun Gauntlet manages vaults across many different protocols. Obviously a large part of that is you guys doing risk assessment and underwriting and and um you know helping diligence uh of the strategy that you're employing. What do you see as like the most common mistakes that vault managers make like you know more of your competitors or the market more broadly? I mean I think it is actually the mistake that the year's made which is duration management right like fundamentally so one one thing I'll say about like the vault versus stablecoin thing which I think is worth mentioning is for a stable coin you have to pay some fraction of your yield in liquidity incentives because in order to actually be fully liquid at all times in order for people to be willing to LP in order for integrations with exchanges and stuff you have to effectively pay out some of your yield. not like totally free.

And so

saying like the reserve buffer basically eats into your yield.

Yeah. Reserve. Exactly. Like in some way, shape or form, whether it's a reserve buffer, whether it's incentives you're paying like directly. You know, every stable coin has a different way of chopping it up and redistributing it.

But but there's some amount you have to pay for demand liquidity, whereas vaults don't have to pay for that. But the converse of that is because you're not forced to think about liquidity, you mess up the duration management, right? and you you basically are overallocated to a yield product and then your users can't withdraw for a certain amount of time. And I think fundamentally that has historically and continues to be the easiest mistake to make because if you're constantly optimizing for like strict max yield and not risk and or liquidity, you will always just get stuck in these long duration things that you can never exit. And basically to me that's the fundamental separation between a vault and a stable coin is how much you have to think about duration management explicitly like that that is the thing that separates them.

Yeah that's a really good point. Um I I guess you know Cindy you also see multiple vaults operating on drift. What do you see as distinguishing you know the great vault managers versus the the maybe not so great vault managers?

I think one is capacity as well as the the overall risk of the strategy. Um when I say capacity it's like there are some strategies that um for instance funding rate altcoin arbitrage on uh subundk volume assets right like you can only really take um so much in those vaults. I think the best vaults scale really well um one example of that is the JLP vaults um which are very very popular on right now. you essentially deposit JOP a yielding asset. you short the the um pers and because open interest is so large on those assets um you can take really large amounts of capital in those uh funding rate alcoin ars may give you like 50% uh 100% APR but um you know there's no capacity on those and then we we have some like on the topic of stable coin vaults which are more delta neutral you have to pay some some level of treasury yields for that and on the complete other side of the spectrum you have things like trend following vaults or even 100x liquidity sniping vaults like I've seen some of those take place.

Um they they might do really well for a day and you might actualize returns from those but they see like a 80% draw down the the next day. So consistency of of um yields and the consistency of uh the strategy itself are similar ways that you would assess a hedge fund.

Um and the best ones are high capacity uh low risk, high turnover and uh are able to deliver consistent returns. I think uh maybe for folks in the audience who are maybe not spending all day looking at vaults like like you know some of us on stage, what should they be looking for in terms of green flags and red flags when they're thinking about getting maybe some extra yield on their on their idle cash?

Yeah, I think what what people should look for generally is just how long a manager has been operating their reputation across multiple um you know platforms and uh what their max draw on what their sharp ratio looks like. Um yeah, I would say those are the main things. Go ahead.

I think the historical track record of managing a vault, I think as we on this topic, I think as you know, curators or vault managers get larger and larger, we're starting to see some recklessness in the way that they partner projects. We're starting to see, I think for the sake of growth, certain things in terms of risk metrics getting compromised in terms of, you know, the kind of oracles they set up for various lending markets. I think these type of issues only surface when they become a problem and that's when it's usually too late. So I think even for the retail crowd, you know, don't just trust the size of the curator, but also, you know, look at the quality and depth of research they've put out historically, um, the kind of signals they tend to give. Are they, you know, independent in terms of calling out other projects or calling out other curators in terms of how they set up these markets?

Um, I think that's pretty key. I'm I'm actually quite concerned about the larger vault ecosystem. I think someday we'll definitely see um something happen, especially given that many of the curators um I I think we've seen glimpse of it with, you know, usual money on uh Morpho when they actually changed the uh value of the oracle. I think that could actually happen at a much larger magnitude someday. But I think the consolation here is many money markets uh founders or projects know this and they're setting up the money markets to be isolated.

So these risks at least can be contained at some point.

I think that's maybe a good point around sort of like the black swan risk around around vaults is hey maybe there's some some weirdness around someone you know uh having this sort of fixed oracle and that's sort of causing the sort of cascading issues. Maybe on the other side I mean what do you think is like the biggest opportunity or sort of underserved you know market in in in vaults right now? like what are you what are you personally excited to see?

I think that if now when everything is fine and dendy a lot of um you know folks think that you know these vaults are safe etc etc and when something bad happens I think that's when we tend to see the rail cream float to the top and we start to see the project stable coins or vaults that actually survive these sort of storms because of layers of protection or defenses that they've set up. For example, for user money, we insisted on developing a risk trench because we know that there are a lot of unknown unknowns in crypto and the last thing I want is I spend years of effort, millions of investors money building a stable coin and an unknown unknown happen and that's the end of your project. Credibility is lost. We've seen that in the past cycle a lot. you know, many protocols.

Inverse Finance, for example, had huge bet that took years for them to come back. And I think that's what separates the folks that are too hyper optimized for growth and neglecting some of these risk uh metrics versus the ones that really think about longevity, transparency, and risks for the long term. I think we kind of didn't touch on the biggest topic about vaults, which I feel are new banks. Uh I think we're starting to see an emergence of something like that where like the difference here is there's a specifically um focus on distribution to retail um while offering yield on the back end through DeFi and for example one is like etheri is car has cash back but also like um the money you put in it goes into their faults and um I'm starting I'm kind of excited for this because uh the last time I remember we had a decent new bank was anchor but an like that that blew up but like you know 20% yield right um and they had like a lot of retail interest even recently Singapore had chocolate finance um which is like this uh debit card in Singapore they had like some they were under fire um for breaching something I can't quite remember what it was but there's like clear PTSD there uh but personally I think it is a space that eventually we will start exploring when people are ready because there are some really sound strategies um that don't rely on like Ponzomics to actually get yield from and it's way more than the yield that people can get in their bank accounts right now which I think is very valuable to offer to retail.

Yeah, I saw you know even Coinbase rolled out uh Coinbase lending recently which is just a Morpho effectively positing USC into Morpho. So it seems like this trend is getting you know more and more mainstream.

Yeah.

Um I want to maybe switch gears a little bit. I was talking with Lewis a little bit before before this um about you know as a VC I'm getting a bunch of pitches for uh agents you know basically hey you talk to an agent they will trade and run a strategy on your behalf that's sort of cut you know tailored to you for from my view this is almost like antithetical to vaults right instead of hey let's pull capital into like one strategy that everyone benefits from let's have a million different bots running offchain and they all sort of perform very similar strategies but you tailored to the individual people. Um, how do you guys think about like an a a agentic uh sort of you know bot focused universe versus uh you know kind of the current universe that we're in around around vaults? Do you think they can kind of coexist? Do you are you think there's opportunities in agents?

How do you think agents relate to your own business? Um to maybe start with you.

Yeah, I mean I feel like I we're constantly getting a lot of people who are like hey how do we like integrate your vaults with our agent? Most of the time, I think most agent protocols like the the life cycle of of them is like they're like, "Okay, we're just going to make an agent." And like we don't have to think about any of the finance stuff and then they try and then it like they have the urine finance type of problems or like oh they can't withdraw or like they can't claim rewards that they thought they earned and then their users are pissed at them. And then the version two is like okay let's use existing protocols whatever. And then they're like, "Okay, well, we're not really beating the yield of just depositing in those protocols."

And I think right now we're kind of at this thing where like a bunch of kind of the worst agents are dying and the ones that are willing to like invest in like actually trying to find alpha across places are doing better. But realistically, they're going to like I think of it as like a vault as a container or D5 protocol as a container hides a lot of the security stuff for you that you don't have to think about. Whereas like when you're in AI agent land, you're like writing code that could easily like blow up.

And I generally think like vaults isolate a lot of the security risks both on the smart contract side and like the endpoint side as well as like not having a like the agent can just deposit in and allocate for you. So when you're talking about active sun managers, I'd say like something like 40% 30 to 40% of our TBL daily turns over for people who are like either active managers or agents. and like that that is only growing. So

is anyone maybe more optimistic or bullish on on sort of agents or are we all all uh more vault maxis?

I think the techno optimist future is like you have agents running all these aggregation yield strategies for you and you sit back and you tell them hey I'm looking for this type of return and this risk profile you invest for me and you know we don't have to work a day of our lives again. we our entire lives are um are driven by the yields from these strategies like that's the optimistic future. I don't think we're there yet. Um we I think a agents can do some aggregation but to be able to you know like calculate the value of your points to uh figure out exactly what to rebalance into to um which vaults are hot right now which like to assess the risk. I think it's it's a it's a bit of a difficult task for the landscape today.

So, but I'm optimistic of a future where every single person has a, you know, robo advisor that helps them get the types of returns on the capital they want.

I guess as we sort of, you know, are are approaching the end of the panel, I'm curious what advice, you know, you would offer for, you know, people in the audience who maybe want to get, you know, involved in vaults, either, you know, maybe uh being being event manager, maybe being an LP. Where would you kind of start if you're just just curious about um getting involved in vaults in in in 2025? uh definitely use them first. Feel like that seems like the obvious answer. I think the second thing is the space evol expanding a lot.

Um especially on the perpetual side and crosschain side and like I think that's where you're going to see a lot more growth. Um obviously lending will grow but I don't think the yields are going to be that attractive on the borrow side over time for it to to kind of grow beyond where I I don't see it growing 100x. So I see it growing maybe like 10x but I think the perpetual side has like the ability to potentially be 100x in vault total vault size. I mean you already see this one lighter and and drift where it's like the amount of capital that the the velocity at which capital went into them was so so much faster than the lending vaults

and so like I think like you have to include those in your universe.

Do you think basically every new protocol that's going to launch now is going to have their own sort of vaults?

Yeah. And there's all and the more fragmentation there is on you know so if we take the version of the world which the DeFi optimist person like me believes is like you know 20 to 30% of centralized exchange trading volume moves on chain to to perexes I'm using dex in in air because they all obviously the security models are all different but in that world you have tons of composibility advantages for vaults and like you don't need to do all the lending and borrowing stuff that centralized exchanges do for their whales in that manner. Vaults are a natural way of facilitating that and offering these basis trades. So I just sort of think you're naturally the chain volume moves on chain like the purpose vaults can only grow a lot more than they are now.

Absolutely. I think um try them out. We have a we have a big announcement coming later today as well where there's gonna be a new type of vaults to invest into uh where you can get kind of the returns of MM farming and uh providing liquidity for all these uh perexes. I do think the landscape is going to grow a lot. Uh right now we're only seeing like per and spot type of vaults but you might see options uh being added into the mix as well.

um you might see different types of hedging mechanisms and really exotic things come to light. So I'm excited for the future. Um but for now, you know, definitely try them out at your own risk.

Minor alpha leak this early in the morning, pay attention. Um Lewis, what do you think?

I think with any financial product, you know, it's a cliche, but definitely do your own research. I think these are not simple products. Really understand what you're getting into. Don't just look at the headline yo number and get into it. You know, do your own research.

Um figure out the terms and conditions, the withdrawals, the liquidity and most importantly, I think, you know, start small, get your hands dirty before you really dive in.

I think um everyone has made very good points. I fully agree with Louis. Uh I think one of my favorite quotes is uh protect your downside and the upside will take care of itself. And that is especially true true in fall products. Um definitely try them with like small amounts first.

Uh if you get burned at least you don't lose everything and then you can slowly as you get more experience with these things put in more money. Yeah,

maybe that's a good note to end on. Um thank you to our panelists for uh kicking us off this morning. Can we get a quick round of applause?