DeFi yield vaults have pulled in more than $10 billion, according to a Financial Times report published on Oct. 19, as regulators and market participants take a harder look at the legal and liquidity risks tied to on-chain lending strategies. The figure is up more than 150% from roughly $4 billion at the start of 2025, and some products are offering yields above 20%.
The report said the rapid inflow of capital into increasingly complex DeFi lending structures has raised concerns about how these products should be classified under existing rules and whether stress in one part of the market could spread through liquidation chains in a sharp downturn.
Vault deposits rose sharply as high yields drew in capital
DeFi vaults function in a way that resembles on-chain asset management funds. Investors deposit crypto assets such as USDC and ETH into smart contracts, and vault curators allocate that capital across lending markets based on preset strategies to earn interest or other forms of yield.
According to an Oct. 4 announcement from S&P Global, total deposits in digital-asset lending vaults increased from about $1.5 billion in September 2024 to $10 billion in September 2026. Some strategies were offering yields ranging from 3% to more than 20%, attracting fintech companies, hedge funds and crypto asset firms.
The report also cautioned that a higher yield does not automatically mean a better investment outcome. Some products may rely on illiquid collateral, leveraged looping strategies or higher credit risk, and the returns do not come with deposit protection.
Morpho has become a key platform in the segment
Morpho has emerged as one of the most visible protocols in on-chain lending. DefiLlama data dated Oct. 19 showed Morpho with about $11.04 billion in total value locked, around $5.61 billion in outstanding loans and roughly $22.22 million in lending fees generated over the past 30 days.
DefiLlama also showed the broader DeFi lending category at about $51.32 billion in TVL, putting Morpho at roughly 21.5% of that total. The report drew a distinction here: Morpho’s TVL covers the full protocol and is not the same as the vault deposit figure cited by the Financial Times, so the two numbers should not be added together or treated as the same market measure.
Why comparisons to Celsius are surfacing again
The risk in DeFi vaults is not limited to falling token prices. The report said layered capital allocation can create a more complex chain of contagion. If collateral prices fall quickly, smart contracts may automatically liquidate borrower positions. If several vaults are holding the same illiquid collateral at the same time, forced selling could push prices lower and trigger another round of liquidations.
It also noted that on-chain transparency does not necessarily make risk easy for ordinary investors to assess. Credit quality of underlying assets, collateral liquidity and the real decision-making authority held by vault managers may still be difficult to judge.
Those concerns have led some market participants to draw comparisons with the crypto lending failures of Celsius, Voyager and Genesis in 2022. At the same time, the report said DeFi vaults are not identical to Celsius. Some on-chain vaults use overcollateralization and automated liquidation, and their fund flows are relatively more transparent, so not every vault should be treated as an opaque centralized lending platform.
A 2026 study by the Bank of Canada reached a similar conclusion, saying DeFi lending can function under appropriate governance but still faces risks tied to leverage loops, concentrated liquidations and systemic fragility.
SEC focus has turned to curator discretion
On the regulatory side, SEC Commissioner Hester Peirce said publicly on July 22 that some DeFi vaults and on-chain lending activities could satisfy the legal tests for investment contracts, investment companies or investment advisers.
The key issue is whether a vault manager exercises meaningful discretion, including selecting investments, adjusting collateral ratios, setting lending rates or deciding liquidation thresholds. Even if the underlying asset itself is not a security, that does not mean the related yield product automatically falls outside securities law.
That points to a regulatory focus that may extend beyond smart contract code to the people or entities that actually control capital allocation and the legal responsibilities attached to that role.
S&P Global has introduced a vault risk framework
As the market has grown, S&P Global on Oct. 4 launched a dedicated Vault Risk Assessment framework for on-chain lending vaults. The framework examines underlying asset credit risk, blockchain and protocol security, governance design and the ability of vault managers to maintain the intended risk profile.
For investors, the report said the main question is no longer just the annual percentage yield on offer. It is also where that yield comes from, whether collateral can be liquidated quickly and whether withdrawals can still be processed smoothly during extreme market conditions.
Vault assets crossing the $10 billion mark shows rising demand for on-chain asset management. The report also made clear that if high yields depend on opaque risk-taking, the next sharp market drop could expose the sector’s weak points.