2026 is the Year of DeFi Vaults

Crypto loves narratives, but most of them don’t really pan out as expected in the long term. However, DeFi vaults are different because this isn’t just a ‘Twitter narrative’, it’s a product format. Product formats don’t care about vibes; they spread when they solve real distribution problems.

I’m betting that 2026 is when vaults go from “a DeFi thing” to “the default way users generate yield”. The total TVL (Total Value Locked) of vaults across the Web3 industry will likely exceed $ 15B.

DeFi primitives were never the end product

DeFi at its core is beautiful. Lending markets, AMMs, collateral, liquidations - all programmatic, public, composable. Although people hate the crypto UX, and yes, the onboarding for a new user is still horrendous, once you are in the ecosystem, I personally find using DeFi products is so smooth and easy!

But primitive DeFi has always had a brutal limitation in that it assumes the user wants to be a semi-professional trader or operator. To earn yield ‘properly,’ a normal user has to choose a protocol, evaluate smart contract risk, understand liquidation mechanics (even as a lender), track positions across multiple apps, and keep moving capital when yields change. That’s not finance, that’s a part-time job.

When people say “DeFi will go mainstream,” the real question is: what interface do mainstream users actually use? The answer increasingly points towards vaults.

Vaults are the productization layer of DeFi

A vault is not a protocol primitive. It’s a wrapper that turns primitives into a product.

It does three things that are critical to real adoption.

Packaging - “Deposit USDC, earn yield” is a product. “Supply to X market, monitor utilization, watch liquidation incentives, rebalance exposure” is not.

Controls - It adds risk parameters, exposure limits, liquidity windows, and compliance constraints. This is what institutions (and eventually regulators) require to engage seriously with onchain capital markets.

Distribution - Vaults enable fintechs, exchanges, and consumer apps to offer yield without sending users on a wild goose chase.

This is why vaults feel inevitable. They’re the thing that turns DeFi from infrastructure into something you can sell as a feature.

The DeFi stack mental model

At the base, you have liquidity venues like AMMs and deep markets. On top of that sit borrow/lend protocols, which depend on liquidity for liquidations and pricing. At the top are vaults, which aggregate opportunities across markets and package them into a user-facing product.

Vaults sit at the top because users don’t want “access to markets.” They seek outcomes such as yield, liquidity, safety, and simplicity. In mature financial systems, end users never directly interact with the underlying markets. They interact with products that abstract away complexity, and vaults are essentially DeFi growing up.

Yield is not magic; it’s borrower demand

Every cycle has a version of the same dumb argument about where the yield comes from. The answer is boring, and that’s the point. The highest sustainable yields are driven by borrowers who pay for capital, particularly through stablecoin borrowing.

If you want a mental picture, onchain borrowing demand is still heavily dominated by traders seeking leverage, hedging, arbitrage, or deploying capital into other strategies. Their demand for stablecoins is what drives the stablecoin yield.

Vaults are simply the packaging layer that routes lender capital into those markets in a controlled way. This matters because it turns “yield” from a marketing number into a product decision. What liquidity terms do you offer users? What protocols do you allocate to? What collateral types do you accept exposure to? What happens during stress? That’s why vault design is more important than APY screenshots.

The ‘DeFi Mullet’

The most important shift isn’t “vault TVL goes up.” It’s that DeFi is becoming invisible infrastructure.

We’re moving toward a world where consumer apps own UX and distribution, vault infrastructure providers handle the plumbing, risk managers and curators define strategy and controls, and DeFi protocols become yield engines that sit underneath.

This “fintech in the front, DeFi in the back” model is not competitive with DeFi. It’s actually how DeFi wins, because the alternative is asking hundreds of millions of people to become power users, and that was always a fantasy. The integration of Morpho with Coinbase demonstrated this very well last year. It has resulted in billions being lent and borrowed through that infrastructure.

The vault ecosystem is splitting into real roles

As vaults become the default packaging format, the ecosystem naturally separates into three roles.

Vault infrastructure (the admin layer) - This is the unsexy part, including contracts, accounting, NAV, fee plumbing, withdrawal queues, integrations, and security. It’s complex, expensive, and not something most teams should rebuild from scratch.

Risk managers and curators (the strategy layer) - This is where the real differentiation will live. Curators determine allocations across markets, risk limits, the degree of aggressiveness or conservatism of a vault, how to respond to volatility and liquidity events, and how to source incremental yield. They also build trust, and in finance, trust is a compounding asset.

Distribution (the user layer) - Distribution wins economics. Whoever owns the user relationship and the interface will capture the lion’s share of the fees because they’re the ones delivering the product to customers at scale. That’s not crypto-specific, that’s just how finance works.

The real risks to watch

If you’re using or building vaults, there are three risks that matter more than the usual noise.

Smart contract risk - Protocols and vault contracts can fail. Battle-tested helps, but risk never goes to zero.

Liquidity risk - Can you withdraw when you want? Some vaults have instant withdrawals if liquidity is available; others require queued withdrawals. This is product design, and users care about it more than APY.

Bad debt and liquidation risk - Overcollateralized lending isn’t immune to fast crashes. If collateral drops faster than liquidations can execute, markets can suffer bad debt. Protocols vary, but the risk remains.

Vaults don’t eliminate these risks; they make them manageable if properly designed.

Bonzo Vaults brings the vault thesis to Hedera

Speaking of vaults being shipped to new ecosystems, we launched Bonzo Vaults at Bonzo Finance in December 2025. It’s a fork of Beefy Finance and the first vault product on Hedera.

For context, the Hedera DeFi ecosystem has grown significantly over the past few years. During last year’s peaks, the TVL jumped roughly 5x to around $275M, monthly DEX trading volume reached $1.1B in December 2024, and stablecoin liquidity was approximately $ 100 M. The foundation was present; what was missing was the productization layer.

Bonzo Vaults are automated yield-optimization engines that enable retail and institutional users on Hedera to automate their liquidity management via institutional-grade, curated DeFi strategies. Deposited liquidity is routed to DeFi protocols across the ecosystem, with ranges and configurations automatically configured, positions rebalanced, and rewards automatically harvested to compound returns.

We integrated three core protocols. SaucerSwap supports concentrated liquidity DEX strategies; Bonzo Finance provides the borrow/lend layer; and Stader Labs HBAR staking (HBARX) enables liquid-staking leverage strategies. Users deposit, receive vault share tokens, and let the strategies handle the complexity.

The initial strategies include Single Asset DEX vaults, where you deposit one token and gain exposure to concentrated liquidity pools without managing ranges; Dual Asset DEX vaults that automate rebalancing to keep 100% of liquidity deployed in productive ranges; and Leveraged LST vaults that layer liquid staking tokens with lending to amplify yield.

The interesting part is that Bonzo Vaults are permissionless. Any developer with experience in EVM smart contracts can build, audit, and deploy vault strategies, and they receive a “vault strategist” fee on the yield. This creates an incentive flywheel: more strategies lead to more yield options, which attract more users and TVL, which generate more fee revenue for developers, which in turn attract even more developers.

Vaults are how onchain capital markets scale

The reason I’m bullish on vaults is not that “yield is back.” It’s because vaults solve the hardest problem in DeFi: turning financial primitives into products that can be distributed safely at scale.

In 2026, every serious asset manager, exchange, fintech, and wallet will need a vault strategy, either by building vaults, integrating vault infrastructure, or partnering with curators.

And once vaults become a standard feature inside mainstream apps, the size of the onchain capital base stops being “a few whales and a few thousand power users.” It becomes millions of users who are diversified, sticky, and sustainable.

That’s when DeFi stops being a niche ecosystem and starts behaving like a real financial layer. Not because everyone moved onchain, but because onchain finally learned how to ship.

Side note: There’s been some great recent discussion on this topic. John Zettler (Director of Product at Kraken) and Sun Raghupathi (Co-founder of Veda) have discussed vault infrastructure on various podcasts, including Veda's $18M raise and its current TVL of over $3.7B across its vault platforms. The conversation around vaults as a category is heating up, and for good reason.

Disclaimer

This is NOT Financial Advice! All the views mentioned in this article are my perspectives. I do not imply anything, directly or indirectly, about the token value or cryptocurrency prices related to any of these technologies. I also do not solicit or recommend any cryptocurrency for investment.

2026 is the Year of DeFi Vaults was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.