S&P Global Launches Risk Scores for $10 Billion Crypto Lending Vaults

S&P Global Ratings introduced a Vault Risk Assessment (VRA) aimed at evaluating crypto lending vaults, which currently contain roughly $10 billion. The ratings firm emphasizes that these scores do not constitute credit ratings.

A lending vault can be thought of as a blockchain bond fund that pools deposits and lends them to borrowers. Over two years, deposits have increased more than sixfold, yet disclosure standards vary widely among vaults.

S&P's Approach to Scoring Crypto Lending Vaults

The announcement details six risk categories: portfolio credit quality, liquidity mismatches, the curator, the blockchain, the protocol, and vault security and governance.

Curators are the entities that determine how a vault allocates its capital. Consequently, their decisions can determine whether depositors recover their funds during a market downturn.

According to S&P, each assessment offers a forward-looking perspective on the likelihood of investor losses. The firm will not evaluate the yields advertised by vaults.

James Wiemken, who leads global ratings services at S&P Global Ratings, highlighted inconsistent reporting practices across the industry.

“…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 Wall Street Wants a Voice in DeFi Risk

The VRA is part of S&P's broader expansion into digital assets. In September, the company agreed to purchase auditor OpenZeppelin and acquired a stake in data provider Kaiko.

Previously, S&P stated it had assigned the first credit rating to a Decentralized Finance (DeFi) protocol, Sky Protocol (formerly MakerDAO). The firm also rated a structured finance transaction backed by Bitcoin.

Vault risks have already materialized as real losses. In August, a governance exploit at Term Labs siphoned approximately $8.5 million from its vaults.

Regulators are paying attention. In July, SEC Commissioner Hester Peirce cautioned that crypto vaults and lending protocols could be subject to federal securities law.

Independent scores might simplify marketing crypto lending vaults to banks and funds that mandate third-party risk assessments. The ultimate test, then, is whether curators begin competing on S&P ratings instead of advertised yields.