DeFi vaults are set to revolutionize finance by 2026, attracting institutional players with new compliance tools.
Key Takeaways
- 2026 is expected to be a pivotal year for DeFi vaults, with significant growth anticipated.
- The infrastructure for DeFi vaults is now in place, setting the stage for rapid expansion.
- Vaults are a layer on top of DeFi that allow institutions to package financial products with compliance and risk controls.
- Liquidity and yield are fundamentally tied in DeFi, impacting user experience and product design.
- The trend in DeFi is moving towards more flexible, multi-protocol, and multi-chain solutions.
- The superpower of beta lies in its multi-protocol, multi-chain approach, enhancing simplicity and aggregation.
- Traditional asset managers will enter the DeFi space by 2026, but they may struggle to compete effectively.
- DeFi can be seen as a backend service that complements traditional fintech rather than competing with it.
- The integration of DeFi into user-friendly fintech applications can simplify the user experience.
- Protocols are increasingly trying to vertically integrate by developing their own vault infrastructure.
- DeFi’s success relies on integrating with traditional financial systems rather than existing as an independent alternative.
- Risk in decentralized finance can be categorized into three main buckets: bad debt risk, liquidity risk, and smart contract risk.
- DeFi total value locked (TVL) is expected to explode as it goes mainstream.
- Vaults will serve as a compliance tool for regulated institutions to interact with DeFi.
- Kraken is actively hybridizing its exchange to incorporate new DeFi products.
Guest intro
John Zettler is Director of Product, Earn at Kraken, where he leads the company’s yield business including staking, stablecoins, and DeFi strategies. Previously at Coinbase, he served as Staking Product Lead and was a cofounder of cbETH, a major liquid staking token that helped drive over $1 billion in gross annual recurring revenue. Before his work in crypto yield products, John founded R.A.R.E Art, one of the first NFT marketplaces for digital artists, and Commandiv, the first combined crypto and stock trading platform for US investors.
The future of DeFi vaults
- “2026 will be a pivotal year for DeFi vaults, with significant growth expected.” – John Zettler
- “The infrastructure for DeFi vaults is now in place, setting the stage for rapid growth.” – John Zettler
- “The growth of DeFi yield products will accelerate as more companies adopt vault strategies.” – John Zettler
- Vaults are a layer on top of DeFi that allow institutions to package financial products with compliance and risk controls.
- “Vaults are a layer on top of that that allows institutions fintechs exchanges anyone with users or capital that wants to offer financial products to their customers to package up the best of defi layer on whatever compliance whatever risk controls offer whatever risk return profile they want as a yield product.” – John Zettler
- “The construction of a good vault product involves optimizing various user preferences and risks.” – John Zettler
- “Liquidity and yield are fundamentally tied in DeFi.” – John Zettler
- “The yield in DeFi comes from on-chain borrowers who pull out stablecoins like USDC for various purposes.” – John Zettler
Institutional adoption and integration
- “2026 will be a significant year for vaults in the DeFi space.” – John Zettler
- “The trend in DeFi will move towards more flexible, multi-protocol, and multi-chain solutions.” – John Zettler
- “The superpower of beta lies in its multi-protocol, multi-chain approach, which enhances simplicity and aggregation.” – John Zettler
- “Aave pioneered lending and borrowing at scale, while Morpho introduced modular lending.” – John Zettler
- “The category of risk managers in the crypto space is growing rapidly as traditional asset managers seek to diversify into on-chain products.” – John Zettler
- “There will never be one party that manages all of the world’s assets, emphasizing the need for diversity in asset management.” – John Zettler
- “Protocols are increasingly trying to vertically integrate by developing their own vault infrastructure.” – John Zettler
- “Curators that focus on their expertise will outperform those trying to vertically integrate into vault infrastructure.” – John Zettler
DeFi as a backend service
- “DeFi can be seen as a backend service that complements traditional fintech rather than competing with it.” – John Zettler
- “DeFi is increasingly becoming a backend service that simplifies user interactions.” – John Zettler
- “DeFi’s success relies on integrating with traditional financial systems rather than existing as an independent alternative.” – John Zettler
- “DeFi can provide competitive yields and a superior product experience by integrating with existing platforms.” – John Zettler
- “Kraken’s approach to yield generation is fundamentally different from platforms like BlockFi and Celsius due to its transparency and non-custodial nature.” – John Zettler
- “The multi-protocol, multi-chain approach is a smarter and more strategic way to achieve better risk-adjusted yields.” – John Zettler
- “The DeFi sector remained stable during the market downturn in 2022 due to its over-collateralized loans and orderly liquidation processes.” – John Zettler
- “The recent failures in the CeFi space were necessary to highlight the importance of transparency in the industry.” – John Zettler
Risk management in DeFi
- “Risk in decentralized finance can be categorized into three main buckets: bad debt risk, liquidity risk, and smart contract risk.” – John Zettler
- “Cybersecurity risk is present but is less of a concern for well-established protocols.” – John Zettler
- “Liquidity risk refers to the ability to withdraw assets from a vault when needed, which varies by protocol.” – John Zettler
- “The risk of bad debt arises when the value of collateral drops faster than loans can be filled, leading to potential losses for the protocol.” – John Zettler
- “Diversifying over low-quality assets can be worse than concentrating assets in a secure protocol.” – John Zettler
- “Different vaults in DeFi have varying infrastructure and risk profiles, affecting their security and functionality.” – John Zettler
- “Fear and uncertainty can lead to liquidity issues even in healthy markets.” – John Zettler
- “Diversification is essential in DeFi to mitigate risks associated with market disturbances.” – John Zettler
The future of DeFi and traditional finance
- “Traditional asset managers will enter the DeFi space by 2026, but they may struggle to compete effectively.” – John Zettler
- “DeFi curators compete for a pool of users and have to establish relationships with credible institutions to succeed.” – John Zettler
- “The distribution partner in DeFi typically takes the majority of the fees generated from vaults.” – John Zettler
- “Building infrastructure for DeFi is a more viable strategy than competing directly with large exchanges.” – John Zettler
- “The integration of DeFi into user-friendly fintech applications can simplify the user experience.” – John Zettler
- “DeFi total value locked (TVL) is expected to explode as it goes mainstream.” – John Zettler
- “The balance between borrowing demand and yield rates in DeFi operates like surge pricing.” – John Zettler
- “The user base in DeFi has historically been small, but this will change with increased participation.” – John Zettler
Kraken’s strategic direction
- “Kraken is developing a suite of on-chain DeFi-oriented products.” – John Zettler
- “The collaboration and input from experienced individuals in the crypto space is a key strength for Kraken.” – John Zettler
- “Vaults will become a significant feature across various fintech platforms.” – John Zettler
- “The user experience should prioritize flexibility in risk management options.” – John Zettler
- “The traditional finance sector may struggle to compete with established crypto firms due to differences in distribution ownership.” – John Zettler
- “BlackRock does not own distribution in the same way that firms like Charles Schwab do.” – John Zettler
- “Crypto and traditional capital markets will eventually converge into a unified capital market.” – John Zettler
- “Token incentives have shifted from paying for liquidity to paying for distribution.” – John Zettler
Token incentives and user attraction
- “Token incentives play a crucial role in attracting users to different platforms.” – John Zettler
- “Some platforms offer significant token incentives that may not align with user expectations.” – John Zettler
- “The best product will ultimately win in the long term, despite short-term strategies.” – John Zettler
- “Risk in decentralized finance can be categorized into three main buckets: bad debt risk, liquidity risk, and smart contract risk.” – John Zettler
- “Cybersecurity risk is present but is less of a concern for well-established protocols.” – John Zettler
- “Liquidity risk refers to the ability to withdraw assets from a vault when needed, which varies by protocol.” – John Zettler
- “The risk of bad debt arises when the value of collateral drops faster than loans can be filled, leading to potential losses for the protocol.” – John Zettler
- “Diversifying over low-quality assets can be worse than concentrating assets in a secure protocol.” – John Zettler
The evolution of DeFi and fintech
- “Different vaults in DeFi have varying infrastructure and risk profiles, affecting their security and functionality.” – John Zettler
- “Fear and uncertainty can lead to liquidity issues even in healthy markets.” – John Zettler
- “Diversification is essential in DeFi to mitigate risks associated with market disturbances.” – John Zettler
- “DeFi total value locked (TVL) is expected to explode as it goes mainstream.” – John Zettler
- “The balance between borrowing demand and yield rates in DeFi operates like surge pricing.” – John Zettler
- “The user base in DeFi has historically been small, but this will change with increased participation.” – John Zettler
- “2026 will be a pivotal year for builders in the crypto space.” – John Zettler
- “Vaults will serve as a compliance tool for regulated institutions to interact with DeFi.” – John Zettler
Kraken’s hybridization strategy
- “Kraken is actively hybridizing its exchange to incorporate new DeFi products.” – John Zettler
- “Kraken has a lot of exciting products planned for the future.” – John Zettler
- “DeFi is becoming more backend-focused, merging with fintech.” – John Zettler
- “Kraken’s approach to yield generation is fundamentally different from platforms like BlockFi and Celsius due to its transparency and non-custodial nature.” – John Zettler
- “The multi-protocol, multi-chain approach is a smarter and more strategic way to achieve better risk-adjusted yields.” – John Zettler
- “The DeFi sector remained stable during the market downturn in 2022 due to its over-collateralized loans and orderly liquidation processes.” – John Zettler
- “The recent failures in the CeFi space were necessary to highlight the importance of transparency in the industry.” – John Zettler