ETHMilan26 - 2026 is the year of the Vault What do institutions look at when choosing vault tech?

Transcript

So, we have Darren. There you go. Co-founder and CEO of Iper Labs is going to talk about a lot of uh interesting things like how institutions can allocate onchain without triggering the regulator which we definitely want to hear about it. Here's it. Floor is all yours. Uh nice to meet you guys. Happy afternoon. Actually, we had different wording here that I couldn't get past my comm's department uh about the regulator. So, if you're a regulator here, we're a very nice team. Uh this is my third year at ETH Milan. Happy to be

back. Actually, I live here. This is my hometown. So, it's the home conference. Means after tonight, I get to go and sleep in my own bed for all the people outside don't have the same. Uh and we also have a side event tonight. So make sure that you register. So uh I'm here to talk to you about institutional vaults which is a very I would say overtalked about topic in 2026 but it is one of the big things and big shifts and I think a massive unlock for capital inside of inside of actually crypto markets. So a little bit about my journey. This is uh for me year 15 building in crypto uh started when there was nothing. We ran around one of the

first exchanges out of a apartment building in a beach town in Chile and now we're running completely decentralized asset management on chain. So that is a massive fundamental shift. Uh the first two years here I was actually talking about interest rate derivatives and interest rate derivatives access actually gets us into onchain asset management. So the protocol IOR protocol now fusion uh has actually been running assets onchain for the past four years. So we launched uh in 2022 and through building that protocol we actually built a very early version of what we consider vaults uh running a lot of uh different actually money market

funds and interest rate derivative uh basically an onchain uh investment bank and actually uh the interest rate swaps will go into structured products on chain through one click. So that's how we got to uh institutionals allocating onchain. But uh when we talk about vaults, what we're really talking about is a new form of asset management. Now asset management isn't something new. Asset management is actually quite old and it relies a lot on trust and also a complete lack of trust. So what is asset management? You typically give money to someone, maybe someone's hu and they run strategies. They take your

money and you have to trust that they're going to do something with the with your money. They have someone looking over their shoulder. And the whole process is implicated around making sure that the person that you give your money to is actually doing what they're supposed to do and that the strategy matches this perspectus. So that goes from custodial where you deploy your assets into an account uh the discretion of what this person can do with your assets actually to the periodic reporting maybe you get a monthly maybe you get a quarterly statement that quarterly statement is calculated by a third party agent and then it's double checked by an auditor and then you have very opaque view into actually what's happening and I think

this is a little bit by design because asset management isn't necessarily really magic. It means that there are people that do it better than other people, but you know, asset management is a it's a very commoditized kind of industry. So, one of the reasons that you have this opacity is because you don't want to leak secret sauce, but vaults changed the entire structure of onchain asset management. Uh you actually see actually I think there were copper uh is announcing that they're trying to get acquired right now. there was another custodian that's getting acquired by another bank. So custodians, they hold your money in trust because you don't want to trust another third

party. But for me as a cryptonative I think the custodial role is a bit unnecessary and in vaults actually it's a new paradigm. Vaults are non-custodial asset management and this is something fundamentally different. If you deploy your assets into a vault, that vault, the smart contract itself becomes the custody of the assets and through a properly constructed vault that can gate exactly what's happening that can gate how the prospectus matches what's happening in our onchain and that can be verified all through by all parties.

The other part is everything can be programmable from the vault smart contract to what it touches inside of DeFi to the strategy to the risk management. This can not only be programmable algorithmic but it can also be transparent can be transparent actually while maintaining intellectual property. So this is an absolute gamecher and instead of getting my nav calculation in my quarterly report from my trusted asset manager, what happens if I can get my nav calculation in real time block over block from the blockchain itself? This again is a fundamental gamecher and then in DeFi you get default transparency. So you never have to guess where your assets are in the market. you can actually look

on chain or if you have a proper UI then you can actually show where your assets are in the market. So it's not that vaults are an absolute game changer. It's not that they're making something new. They're actually taking something very old and they're making it that much better. And in making it that much better they'll actually disrupt the industry and they'll probably put some people out of business. you have a lot of trust implications and people checking that may not necessarily be necessary if you have a fullyfledged operational onchain asset management vault and that's why it is a gamecher.

Okay. So we're going to talk about six key pillars of what institutional allocators what their compliance department what regulators are asking for when they go uh when they think about vaults as an asset management construct. So first of all, let's imagine that we're putting our money into a fund. That fund may have a perspectus. The perspectus describes what can be done. So how do you match this paper self-reported thing into this magic money box that's a smart contract interacting with different protocols with different markets? Uh this is a big question, but actually it can be answered. So in a properly constructed institutional vault, of course I'm

alluding to fusion by IPO. Um this should be actually answerable. So it should never be a question of what is the bounds uh of this uh the smart contract, what can it interact with should this should be transparent from the markets to the actions to the individual assets. So this deterministic risk enforcement can actually be enforced onchain at the smart contract level. So for example, if someone wants to execute outside of the bounds of the prospectus, the vault smart contract itself will enforce these bounds. Again, this gets rid of the necessity to have some of these risk controls inside some of these asset management departments.

Okay, the other is segregated failure domains. So everything can go wrong in any financial strategy. We know of all the potential risks in DeFi. We know that there are hacks. There are different u market risks, the liquidity risks. So the question is, you know, how do we make sure that if something that's highly risky blows up, how do we make sure that it doesn't take out the entirety? So in a vault, actually you can consider it segregated failure domains. Think of a vault as a hedge fund in a box. And every vault should have a completely different risk profile. It touches different markets.

It has different leverage parameters. It has a different kind of algorithm to manage uh the strategy inside. So vaults can be segregated failure domains. You can spin up a single vault per user, a single vault per client or a single vault that allocates for multiple clients. That can have a very clear u it can have a very clear trail of exactly what it can do in which market. So again in uh one thing that you need to that you need to make clear with your compliance department what can this vault do transparency and verification on blockchain is actually part of the uh it's part of its greatest feature. So

transparency and verification when you issue a legal opinion, how do you know what the smart contract can do and how do you how do you know what it can't do? Again, we're talking about how you match this perspectus to the onchain contract. So we built screeners on all of the fusion vaults where you can see exactly what is uh what is possible in the vault, where your money is at all time, what it's yielding, and the transparency and verification, it actually makes it readable for all parties. compliance as infrastructure is probably one of the biggest blockers I would say to uh institutions getting allocation on chain when people started building in DeFi

they didn't talk about what is allowed by law they didn't talk about what's uh what's compliant by different standards across multiple jurisdictions but if you want to get institutional capital inside this is something that you have to think about so one of the biggest blockers especially especially for institutionals that are deploying other people's capital is who's my counterpart. So the lack of KYC in most of DeFi is actually a big blocker and it really depends on what your structure is. If you're structured like a fund, it's going to be much bigger blocker than if you are more liberally structured like a family office or if you're something like an ETP. But as a vault, you can actually gate who can in who can interact with a

vault through a white list. You can use blacklists even if you're doing a public vault to uh you can run it across screeners for OFAC sanctioned addresses and infusion vaults you can actually whitelist from the vault depositor level all the way down to the inmarket level and I think this will be a massive unlock in size for institutional capital. So what happens if you need to change a strategy in if you need to change a strategy inside a desk you might have to send an internal mandate you might have to get it changed by the by the compliance but if you have algorithmic strategies that you're running at a vault level that are completely configuration based you can actually update the smart contract and the

offchain parameters and it automatically interacts. So for example uh there was a if you guys are familiar with DeFi and what's happening right now there was an exploit of a protocol called Kelp and this set off a chain reaction that chain reaction meant that one of the largest protocols uh a had massive potential bad debt. So some of the infrastructure that we run inside of Fusion vaults allowed Fusion to be one of the first vaults outside of a moving around 50 million out completely out in a single flash loan at one atomic transaction to safety. What did that take? It took a change of a parameter on a backend infrastructure that's running on a

fusion vault. So this is something that you can actually do 247 when you're trading on chain. And so the first five things that we're talking about, the transparency, the controls, the KYC, all of this makes it easy for all parties involved from sales and marketing down to the regulation to your in depositor to the um sorry guys uh to the uh So, okay. To the end investors that are

putting money in your contracts, it's been a long day, a long week. Okay. So, what we're talking about at scale, I think that asset management onchain is an inevitability. One of the biggest blockers is the KYB and the KYC, but we're getting over that. So we have institutions right now that are deploying hundreds of vaults on our infrastructure. We've talked with the lawyers, we've talked with the compliance departments, we've talked with the regulators. And one of the biggest things that will be a massive unlock is something that's really scary, which is the hacking risk, the loss of funds, the uh the risk of uh uh of breaking anti-money laundering laws. So we build with max transparency.

So fusion fusion vaults as a construct they embrace the the transparency that you get from onchain everything can be verified by third parties and this is powerful and it's important because this is going to be a massive unlock for also capital uh all fusion vaults are actually independently risk rated by a third party called cberus why because the entire risk surface of the vault is transparent it's onchain so this allows you as a depositor a fund that's deploying capital, a regulator, maybe someone like an insurance provider to verify what's the strategy from top to bottom. What are the second and third order consequences? What is everything

that this smart contract touches from the vault smart contract to the assets that it holds inside to assets that it's lining against to uh different failure mechanisms and once you get the transparent verification of the vault smart contract of the asset management you get the risk rating you get the insurance this is where you start allocating in size so just in March we announced the collaboration which we believe is the first of its kind. So through the block we uh we are working with Tesseract.

Tessoract is a um a Finnish FSA Mika regulated fund that's now deploying on our infrastructure and one of the first uh one of the first partners there is 21 shares the massive ETP provider. So what it looks like if you're thinking from the uh from the crypton native sense is 21 shares is the client tesseract is the curator fusion is the stack and this is how they're allocating capital on chain but the important thing is the mika license here which unlocks institutional capital so this is something that's starting to scale uh they have six other clients that are that are coming in

under this under this license under this pilot and so we're quite excited excited to see that because again we think that this is one of the biggest unlocks for DeFi in general which is actually moving institutional capital into DeFi. For the past two years, we've had a lot of DeFi native capital that's been swinging around, farming incentives, not really adding uh becoming net positive. But the real unlock in terms of DeFi in terms of market size is actually moving bank deposits onchain. And we believe that this is the biggest net benefit to bring assets onchain.

So these are some considerations that you need to think about if you are uh institutional allocator, if you're a D5 builder, if you're a vault provider, if you're if you're insurance and so our unlock of the Mika of the Mika compliance, it was it was painful. We went through about six months of talking back and forth with uh with uh the internal lawyers, getting a legal opinion, talking with the regulators. But I think that this unlock is actually going to be very nice for different jurisdictions. We see funds that are actually pushing uh we're seeing one bank actually push another. Uh and so yeah, I mean institutional capital, I

would never think that I was going to talk about institutional capital coming onchain in a fully permissionless uh environment, but here we are. So I want to give just a couple minutes in case anyone has any questions because vaults are a new thing. They're an old thing. There's every kind of vault out there from vaults that are masquerading. they're they're a trust me bro hedge fund or you have massive trust to something that's fully uh fully permissionless uh trust minimized like fusion. So when you're choosing your stack I would choose uh I mean yeah >> yeah choose fusion okay yeah questions Yeah. Okay. So, if you if you're

thinking about like uh so the recap is like who are the players in a vault infrastructure and a uh Okay. So, a vault is it's a smart contract, right? It's the it's the non-custodial vessel that the funds go into. It becomes uh a way of connecting, executing, and the standardizing that accounting and returning the assets to the investor. Right? So the investor, whether it be an individual, whether it be a pension fund, is going to put assets into the vault and they're going to receive shares. the most important role. So I'll tell you about fusion vaults but every vault is a little bit different but there's different standardized smart contract roles. So you can think of fund like different

fund administration roles actually mirrored in a smart contract. So in in the fusion vaults we have the atomist which is like your asset manager. Your asset manager is choosing the strategy bounds. So we use these things called fuses to connect the vault to different uh to to different uh markets. So think of it like you if you use a vault that's a lend only vault to a you know that this is lend only and it's a this vault can't trade per it can't take debt example and then you have this person that's basically constructing the onchain investment universe of the vault but they don't have control of the funds they can't move the money to their pocket so this is your risk management between the depositor and the asset manager now we

have another role which we call the alpha you can think of it like execution execution or I mean yeah your your your execution role the execution role can move the funds on behalf of the vault where the vault is always the end owner through different trades. So the executor is always bound in the smart contract by what the uh the asset manager can do. So when I mean transparency I mean like let's imagine that I'm allocating to a fully public vault. I can look at the vault smart contract I can see what are the bounds I can see which markets are connected and I can know who can do what right I even know that in that if I know this

address is it a is it an EOA is it a you know endowner address it is a is it a multi-IG is it you know so I can also go down in what are what are my risks in in interacting with this vault to understand you know is there a hack risk where someone can reconfigure the vault and actually move money to their pocket Okay. So, there's a couple of different roles uh in the vaults, but it's really reconstructing like the all the administrative controls that you have at a fund. >> Any other question?

>> Yeah. Is Fusion a competitor to like Morpho and A or you guys even build on top of Morpho? And if it's separated, why would an institution choose your infrastructure to build a vault instead of morpho? >> Yeah. So morpho I I would consider morpho more of the market layer. A is a market layer. Fusion is an abstraction layer up uh above. So think of it like again like hedge fund in a box. So for example, we have a yo protocol which built a gold carry trade on top of fusion. So that vault takes uh tether gold x aut deploys it at a borrows USDC and then it leverage loops it into yo

USDC returns the basis to to uh to uh to gold. So something like that is something that you can't build natively on a something that you can't build natively on Morpho. If you're building it as a fund, you can either interact with the individual smart contracts. You can interact with the individual frontends or you can build the consolidated experience which is the vault. So the vault does a couple things. It does connection. It does standardization of accounting. It has the different risk ro uh the the different administrative roles inside of the vault smart contract itself. So it's much more like a fund infrastructure in a box in in multiple ways. Um I mean like for example there's no really

accounting standards across DeFi credit markets. You know you mentioned morph you mentioned a they have interest varying tokens. You know how many decimal points does it have 16 18. So all of this idea of standardization actually fusion handles for you at the at the vault smart contract level. It uses different kinds of connection. And it actually is uh fusion vaults are self accounting. So in a like if you deposit a if you deposit a dollar into morpho you if you deposit one USDC into morpho you get a USDC. A USDC is a transparent smart contract. It has a floating market rate. Uh it's earning interest and anyone can call that. So why would you need someone offchain to tell you what

that's worth? So the vault actually knows its own balance in the in markets and this what I mean by trustless accounting. So we built Fusion. We built Fusion for people that are building strategies on chain. Most of the other vault providers are discretionary asset managers that built something for themselves and that's why they can't really be used by other discretionary asset managers because they were building for their own processes. We built you can think of it very much like moral for asset management. Awesome. Another big round of applause for Darren.

[applause] And now we're going to keep the momentum high because we're going to have Andri from Tal if uh you could make your way to the stage while we are just changing out a few things. You believe that?