There’s a notable shift happening where more digital assets are being funneled into lending strategies, allowing investors to turn their stablecoin and cryptocurrency holdings into credit exposure for potential yields. This growth reflects an expanding range of uses for digital assets.
Stablecoins and various tokens are typically stored in wallets, used for payments, or allocated as capital. Recently, there’s been a trend of channeling that capital into lending and other strategies aimed at generating returns.
According to reports from the Financial Times, more than $10 billion has been deposited into crypto vaults, a significant rise from just $4 billion at the beginning of 2025, based on data from Blockworks. These strategies often promise returns ranging from 3% to 10%, while some higher-risk approaches can yield 20% or more.
However, with potential gains come inherent risks.
Typically, crypto vaults utilize smart contracts to determine how deposited assets are allocated. Many also engage curators who choose strategies, establish risk parameters, and manage fees. The performance of these vaults relies heavily on the quality and liquidity of the assets used as collateral along with the protocols governing liquidation. It’s mainly FinTechs with substantial stablecoin reserves, digital asset treasury firms, and hedge funds that are depositing into these vaults.
Now, when a FinTech holds stablecoins for operations, it essentially has a liquid asset. By moving some of these holdings into a vault, they can potentially earn returns; but this decision also comes with the trade-off of sacrificing some liquidity in favor of exposing themselves to a lending tactic.
And that’s where risks can accumulate pretty quickly. Many vaults employ automatic liquidation mechanisms that sell off collateral if certain thresholds are crossed. If the market takes a sharp downturn, it can trigger a wave of liquidations, exacerbating the problem. Besides, smart contracts can face failures or incorporate assumptions that might not hold during market fluctuations.
Understanding Decentralized Infrastructure Exposure
The report mentioned the hack of the decentralized protocol Resolv back in March. This protocol’s USR token served as collateral in some vaults, where its price was fixed at $1. When the actual market price dropped significantly, these vaults failed to acknowledge the decline in the collateral’s value.
This kind of exposure is emerging as companies concentrate on building infrastructure geared toward institutional clients. For example, Gauntlet secured $125 million in July after diving into curated vaults. They reported that their vaults collectively hold over $1.5 billion in assets and have partnered with more than 150 FinTechs and institutions.
The overall trend emphasizes making digital assets more functional instead of merely something to hold onto.
A PYMNTS Intelligence study from July titled “From Asset to Everyday Money: Making Digital Currencies Spendable” revealed that 27% of stablecoin holders are already using these assets for direct purchases. Additionally, 42% expressed a desire to use digital assets for larger purchases, and 71% of stablecoin holders indicated they would consider using a linked debit card for their holdings.
Vaults offer yet another option for utilizing the same digital liquidity. Rather than just spending their stablecoin balance, owners might opt to lend it through an on-chain strategy and earn returns in the process.
The method of accessing digital assets plays a role in shaping demand. The PYMNTS Intelligence report “Digital Currency at the Credit Union: The Gap Between Interest and Access” highlighted in May that 12% of credit union members were very or extremely interested in accessing stablecoins via a digital wallet, significantly more than the 5% interested in direct stablecoin payment options.
For institutions, deploying substantial stablecoin holdings for yield involves weighing how much liquidity they are ready to swap for exposure to credit, collateral, and technology.
Currently, regulators are scrutinizing who is making these decisions.
Securities and Exchange Commission Commissioner Hester Peirce mentioned in July that a vault containing securities or allocating resources to securities investments could potentially classify it as an investment company. She pointed out that lending strategies could have implications under federal securities law depending on how they’re structured and what activities they involve.
Earlier in May, SEC Chairman Paul Atkins called for clearer regulations concerning on-chain financial activities, which would include crypto vaults, as reported by PYMNTS.
With vault deposits surpassing $10 billion, lending is taking on an increasingly prominent role. Banks and FinTechs that have been focusing on stablecoins for payment and treasury purposes now find themselves monitoring capital shifts into credit markets, which inevitably come with risks related to borrowers, collateral, liquidations, and smart contracts.
