Understanding vaults: what happens beyond the yield

CoinDesk

by Nassim Alexandre

February 19, 2026

AI-Generated Deep Dive Summary

Crypto vaults are gaining traction in the DeFi space as capital flows into them continue to rise. These on-chain investment vehicles allow users to deposit funds, receive tokens representing their shares, and have those funds allocated by a curator according to specific mandates. While some vaults offer robust engineering and controls, others essentially package yield without addressing underlying risks. Understanding these risks is crucial for investors, as they can significantly impact returns. The first layer of risk lies in smart contracts, which are the backbone of crypto vaults. Investors must verify when the contract was last audited and whether any changes have been made since. Properly designed vaults should include safeguards like timelocks on new collateral additions and multisig approvals for strategy changes to protect depositors. The second layer involves underlying asset risk, focusing on credit quality, liquidity, and structure. Curators play a critical role here by selecting eligible assets, setting parameters, and actively monitoring the portfolio. This is particularly important for real-world asset strategies, which often involve single issuers or rates. A curated approach combines multiple vetted issuers under active management, offering diversification without individual credit risk. Redemption risks are another key consideration. Investors must understand the terms under which they can withdraw their capital and how quickly they can access it during a downturn. The role of liquidators and whether the manager commits capital to backstop them becomes crucial in stress scenarios. This makes redemption terms one of the most critical factors for investors to evaluate. Curated vaults offer distinct advantages over traditional funds, primarily due to transparency. Every allocation and parameter change is on-chain and verifiable in real time. While the underlying collateral may be familiar, the on-chain structuring details—such as recourse

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Originally published on CoinDesk on 2/19/2026