Onchain Vaults Challenge Traditional Finance's Trillion-Dollar Credit Market

Grayscale Research released a report on July 29 arguing that onchain vaults could eventually rival traditional finance's trillion-dollar credit market. Onchain vaults pool investor capital into professionally managed portfolios chasing yield, similar to collateralized loan obligations (CLOs). The difference is that vaults operate on blockchains like Ethereum, Base, and Solana with full transparency.

The report highlights the structural advantages of blockchain infrastructure, including transparency and liquidity. With every position, rebalance, and yield source visible in real-time, investors can make informed decisions. Additionally, blockchain-based settlement can compress time and cost compared to traditional methods.

The $7 billion onchain vault market is managed by 57 curators, but it pales in comparison to the traditional CLO market, which totals around $1.5 trillion. The report acknowledges that uncertain US securities regulations pose challenges for onchain vaults, particularly regarding the role of active curators.

Stablecoins dominate the vault landscape, with 79% of onchain vaults focusing on stablecoins. Vault depositors seek yield on dollar-denominated holdings rather than leveraged bets on volatile crypto assets. The report suggests that blockchain infrastructure offers advantages that could narrow the divide between traditional finance and onchain vaults over time.