What actually is a vault?

uh a vault i mean look crypto loves to invent jargon yes and not very helpful jargon at times i think vault is a is a term of art similar to token in the sense that token is just a description for a smart contract that can mean tons of different things And a vault, similarly, is a description for a smart contract that can do lots of different things.

Technically speaking, a vault is a type of token that keeps track of the nav, something like this.

I think that's a useful way of thinking about it.

So you have a smart contract.

that can be configured in a lot of different ways, that can do a lot of different things, and whose main difference relative to a token is that there is an underlying pool or group of assets or claims, and a vault share gives the user the ability to withdraw that proportion of assets.

So that's from a technical perspective.

It's a it's a curated thing that gives an investor exposure to the asset that they're interested in.

Even outside of crypto? Yeah.

Absolutely.

Like, this is our, like, we strongly believe this.

To, to us, it's such a clearly superior way of using money, of issuing private liabilities.

I, I do think it will take a very long time because these things do take a long, a very, very long time.

But we also think it's inevitable.

It's also the sort of thing that is bound to emerge.

... collectively high level, these are the types of things.

Um, sorry, that DeFi has that TradFi doesn't.

I mean, uh, I don't fundamentally disagree with the list.

It's-- I think Tom did a pretty decent job in being quite exhaustive about all of the sources of risk.

Um, enumerating them is very complicated because you often...

Like, you don't know if there are some new risks around the corner that you hadn't con- that you hadn't imagined before.

I think the, the probability of default and loss given default model is maybe more intuitive for like a simple ex-explanation, and I think it illustrates very much the sort of unique risks of DeFi, which is, you know, you have a situation where the probability of default is very difficult to define.

You don't know at what point...

Adrian, what about you?

But let's unpack why our raise for 2% to 3% to 4% on DeFi.

I can maybe kick off and I'm keen to hear Luca's input on this.

I think DeFi has matured to a point where it's worth drilling down in exactly what we're referring to.

I agree that generally kind of rates are low across the board, regardless of the risk of the collateral type or the type of instrument.

But I think if you anchor on something like over collateralized Bitcoin lending, let's say, or loans against over collateralized loans against ETH, that's where you see that rates are kind of at or near or slightly under SOFR, but basically trending around the traditional finance risk free rate.

And I think we would generally expect one, expect this and two, kind of see this as an example of DeFi's maturation.

So we're not super stressed about it, necessarily.

can tell ourselves, okay, de facto, the treasury rate is essentially risk-free,

admin rights to, you know, set certain variables or like enact within the construct of the smart contract logic certain actions, but without being able to withdraw the funds.

I think here we make the distinction between cryptographic guarantees and let's call them social guarantees, where something like a fiduciary responsibility is a legal construct that's meant to enforce a social guarantee in the sense that an asset manager needs to have the threat of legal action in order to persuade him to not behave maliciously, let's say.

And in the DeFi space, one of the value propositions is that you can actually not necessarily do away with fiduciary responsibility, but enforce it cryptographically in enough variables to make it actually impossible for the curator to be malicious.

Now there's a lot of room around and there's a lot of room and nuance in the Vault space because there are a lot of Vault constructs that have hidden social guarantees that look like cryptographic guarantees.

They have a lot of admin keys, as you mentioned.

One of the reasons we like the Morpho platform is because so much is actually cryptographically guaranteed.

That said, there is still a lot of discretion on the curator side, which is why we also go the extra mile to try and turn as many of these social guarantees as we can into cryptographic guarantees.

So I wonder how you think about like where we are today, you know, level of maturity of the space and then how the trajectory is likely to proceed from here.