by Coinstrooper Crypto Articles
Quick Take
  • S&P Global Ratings has launched a Vault Risk Assessment (VRA) to grade crypto lending vaults, a market now holding about $10 billion.
  • The ratings giant stresses that its new scores are not credit ratings.
  • Think of a lending vault as a blockchain-based bond fund that gathers deposits and lends them to borrowers.
  • However, deposits grew more than sixfold in two years, while disclosure standards still differ from vault to vault.

What Happened

S&P Global Ratings has launched a Vault Risk Assessment (VRA) to grade crypto lending vaults, a market now holding about $10 billion. The ratings giant stresses that its new scores are not credit ratings.

The announcement lists six areas of risk. They span portfolio credit quality, liquidity mismatches, the curator, the blockchain, the protocol, and vault security and governance.

For crypto lending vaults, each assessment gives a forward-looking view of how likely investors are to suffer losses, S&P says. It will not comment on the yields that vaults advertise.

The VRA extends a wider push by S&P into digital assets. In September, the firm agreed to acquire auditor OpenZeppelin and took a stake in data provider Kaiko.

Meanwhile, vault risks have already turned into real losses. In August, a Term Labs governance exploit drained roughly $8.5 million from its vaults.

Market Context

Curators are the firms that decide where a vault deploys its capital. As a result, their choices can decide whether depositors get their money back during a market shock.

“…the inherent complexities and varying disclosure standards in this nascent market create a clear need for a standardized, independent risk perspective,” James Wiemken, said

Why It Matters

Why Wall Street Wants a Say in DeFi Risk

Regulators have taken notice. In July, Securities and Exchange Commission (SEC) Commissioner Hester Peirce warned that crypto vaults and lending protocols may fall under federal securities law.

Independent grades could make crypto lending vaults easier to pitch to banks and funds that require third-party risk checks. Therefore, the real test is whether curators start competing on S&P scores rather than headline yields.

The post S&P Global Brings TradFi Risk Grades to $10 Billion Crypto Lending Vaults appeared first on BeInCrypto.

Details

Think of a lending vault as a blockchain-based bond fund that gathers deposits and lends them to borrowers. However, deposits grew more than sixfold in two years, while disclosure standards still differ from vault to vault.

How S&P Plans to Score Crypto Lending Vaults

James Wiemken, head of global ratings services at S&P Global Ratings, pointed to uneven reporting across the sector.

Earlier, the company said it issued the first credit rating for a Decentralized Finance (DeFi) protocol, Sky Protocol, formerly MakerDAO. Another S&P rating covered a structured finance deal backed by Bitcoin.