Vaults are noncustodial blockchain infrastructure that enables capabilities impossible in traditional finance.

In traditional finance, financial products are built on fragmented, siloed, and generally outdated infrastructure. To offer a single product requires coordinating multiple intermediaries, integrating proprietary systems, and managing manual processes. Even then, the “best” financial products lack personalization, accessibility, and transparency, while still bearing a high cost to the user.

Vaults change this.

A vault is a programmable, noncustodial strategy that users can opt into to allocate deposits across different opportunities, without reliance on intermediaries, and all within a single atomic environment — the blockchain. Users can deposit and withdraw from a vault at will, and without anyone needing to facilitate (or being able to prevent) the associated transactions. Users keep full custody of their assets at all times.

Vaults share a similar goal to traditional funds — providing users with a simpler way to deploy capital more effectively and efficiently, but with automated and programmable code instead of intermediaries.

For those familiar with traditional finance, vaults combine the scale and accessibility of ETFs with the control and guardrails of an SMA.

Vaults enable fundamentally better financial solutions through:

• Composable management: operating in a unified environment without intermediaries — instead of multiple siloed databases, ledgers, accounts, and systems — enables more liquid, affordable, and personalized financial products.
• Accessibility and ease of integration: all you need is a wallet and digital assets to interact with a vault, drastically democratizing access.
• Programmability: vaults provide transparent and irrevocable safeguards — advantages that come only from being built onchain.

Vaults share some characteristics with funds, but there are several key differences.

Traditional fund structure: You invest in a fund. The fund owns the assets, and you own shares in the fund. The fund manager has full custody and control. There’s a legal wrapper, often with lock-up periods, redemption windows, and minimum investments. You can only deposit and withdraw your assets with the involvement of the fund manager.

Vault structure: You deposit assets into a smart contract that is immutable and is not controlled by any person or entity. You maintain full custody—your assets never leave your control in the traditional sense. The vault automatically allocates your deposit based on predefined rules. You can withdraw instantly and permissionlessly at any time without reliance on counterparties.

When a user deposits in a Morpho Vault, the funds are allocated to the lending markets (Morpho Markets) according to the strategy set by the curator (we will publish an article specifically about curators soon).

These funds are made available to borrowers who want to take a loan against a given collateral, such as BTC, ETH, or tokenized treasuries. Technically, it can be any assets that live on the blockchain. Borrowers then pay interest on the loan, which becomes yield for vault depositors.

Users can withdraw from the vault at any time, receiving the initial amount plus interest.

Depositor protections

Vaults are designed with strong protections for depositors:

• They are fully noncustodial: curators can never take direct custody of user deposits.
• Allocations can only happen within predefined caps and limits set by the vault.
• Any change that alters the risk of a vault goes through a timelock — a delay in the execution — giving depositors time to react and withdraw if necessary.
• Optional “sentinel” roles can be configured, allowing depositors to veto allocation changes.
• Depositors can always redeem their share of assets in kind, even if the vault is illiquid.

Tokenization brings traditional, offchain assets onto blockchains. The value is in bridging TradFi and DeFi: enabling traditional instruments to be held and transferred onchain. Tokenization improves distribution, but it does not create fundamentally better financial products. Tokenized assets still:

• Operate across fragmented environments, systems, and databases, making it expensive and difficult to offer highly personalized products.
• Inherit legacy offchain reporting, processes, and accounting, which reduces efficiency and increases costs.
• Do not have the same transparent and irremovable safeguards that can only come from being built with smart contracts.

Vaults provide the infrastructure for financial products to be both distributed and built entirely onchain. Instead of depositing in a tokenized fund that invests all funds offchain, you’ll deposit in a vault where all funds are allocated onchain.

Tokenization is a useful transition tool, but vaults are the end goal.

Vault infrastructure exists on a spectrum. At one end lie fully onchain vaults, like Morpho Vaults, where immutable smart contracts enforce strong guarantees: users retain custody, allocations are transparent and verifiable, and changes go through timelocks. At the other end are vault “wrappers” that maintain more traditional custody arrangements, where the vault operator controls the assets and retains full discretion over how they are used.

It’s important to understand precisely which guarantees your vault infrastructure provides and how those guarantees are enforced.