Onchain Vaults Emerge as Potential Credit Market Challengers

Grayscale Research has published a report on July 29 that suggests onchain vaults could potentially rival traditional finance's trillion-dollar credit market. The report, authored by Zach Pandl, argues that blockchain-based settlement and transparency are key advantages for onchain vaults. Currently, the onchain vault market is valued at approximately $7 billion across over 3,000 vaults managed by 57 curators.

In comparison, the traditional collateralized loan obligation (CLO) market totals around $1.5 trillion across the US and EU combined. The report highlights that onchain vaults can pool investor capital into professionally managed portfolios chasing yield, similar to CLOs. However, they operate on blockchains like Ethereum, Base, and Solana with full transparency.

The report notes that 79% of onchain vaults focus on stablecoins, with depositors seeking yield on dollar-denominated holdings rather than leveraged bets on volatile crypto assets. The curators managing these vaults function similarly to CLO managers in traditional finance, making active decisions about capital allocation and taking risk.

However, regulation remains a wildcard for onchain vaults, particularly around the role of active curators. Existing US securities regulations pose challenges, with questions surrounding whether a vault managed by a professional curator constitutes an investment contract under existing securities law.