S&P Global Brings TradFi Risk Grades to $10 Billion Crypto Lending Vaults

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.

How S&P Plans to Score Crypto Lending Vaults

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.

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.

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.

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

"...the inherent complexities and varying disclosure standards in this nascent market create a clear need for a standardized, independent risk perspective,"