S&P Global Introduces Risk Assessments for Growing Crypto Lending Vault Sector

S&P Global has introduced a new risk assessment framework for digital asset lending vaults as these onchain investment products gain traction and deposits in the sector rise to about $10 billion.

According to an announcement on Monday, S&P Global Ratings’ framework assesses vaults across six risk categories: portfolio credit quality risk, liquidity mismatch risk, curator risk, blockchain risk, protocol risk, and vault security and governance risk.

S&P said the assessments are intended to evaluate the risk of losses for investors in lending vaults, but they will not constitute credit ratings or assess yields. S&P Global Ratings analyst Lisa Schroeer said the framework also was not designed to identify any one of the six categories as presenting a greater risk than the others.

“A material weakness in any factor can constrain the overall VRA,” Schroeer told Cointelegraph. “A strong score in one factor does not offset a material weakness in another.” She said the approach reflects a sector in which “there are many points of risk/failure that can break.”

Digital asset lending vaults combine investor deposits and deploy the funds through predefined strategies managed by smart contracts or human curators. Depositors receive tokens representing their share of the vault’s assets and returns.

S&P said deposits in digital asset lending vaults reached about $10 billion in September, compared with $1.5 billion two years earlier. The firm said it plans to publish its first Vault Risk Assessments in future announcements, although it did not specify which vaults will be assessed first.

Explaining the framework’s potential role for investors, Schroeer said: “The assessment aims to provide more transparency on the risks so that any entity can make more informed decisions when deciding how to allocate capital to DeFi vaults.”

Crypto vaults grow as risks draw scrutiny

Crypto vaults have expanded over the past year as exchanges, wallets and DeFi platforms have introduced products that package lending and other yield-generating strategies for users.

In February, Wallet in Telegram introduced self-custodial BTC, ETH and USDT vaults using infrastructure from Morpho, TAC and Re7. In May, Kraken followed with a Bitcoin yield vault powered by Veda and curated by Sentora, which attracted $30 million from 4,000 wallets within its first 10 hours.

The model has since expanded into tokenized securities. In September, Kraken launched yield vaults for tokenized versions of Nvidia, the SPDR S&P 500 and Invesco QQQ ETFs, with Sentora managing strategies that lend the assets through DeFi markets.

The growing popularity of crypto vaults has also brought risks. In August, lending protocol Term Finance lost an estimated $8.5 million after an attacker exploited governance control of its Meta Vaults.

For now, crypto vaults remain in a regulatory gray area in the United States. In July, SEC Commissioner Hester Peirce said some vaults and onchain lending products could fall under federal securities laws depending on how they are structured and operated.

Peirce said vaults involving discretionary decisions about asset allocation, yield strategies, lending terms or liquidation thresholds could trigger requirements under securities, investment company or investment adviser laws.