A $93 million off-chain lending exposure that "went away" without clear disclosure to depositors—that was Stream Finance's XUSD collapse, and it underscores a structural gap in DeFi yield products: real-time collateral reconciliation and cross-vault exposure tracking remain absent from most protocols, even as institutions like Revolut and BitPanda begin integrating with lending platforms on the vault side. As institutional capital flows into on-chain yield strategies—MV Capital now manages approximately $1.4 billion through fund wrappers, private portfolios, SMAs, and on-chain vaults—the imperative for robust risk controls has never been clearer.

🎟️ Join 500+ institutional leaders at the Yield Summit Series

Cannes (Mar 28-29) • Miami (May 4) • Amsterdam (Jun 1) • Singapore (Oct 5-6) • Abu Dhabi (Dec)

Register as Attendee — Use code INSTITUTIONAL-YIELD for 10% off

Featuring

• Chunda McCain — Co-Founder, Paxos Labs

• Luca Prosperi — CEO, M0 Foundation

• Gytis Trilikauskis — General Partner | COO, MEV Capital

• Steve Pack — Co-founder & CEO, RockSolid

• Benjamin Sarquis Peillard — Founder, Cap

Stream Finance Collapse Exposes Collateral Gaps

The Stream Finance incident revealed a fundamental transparency failure in DeFi yield products marketed as stablecoins. As RockSolid CEO Steve Pac noted, when the XUSD product began unraveling, "the website literally just said we run a number of strategies that involve XYZ but no more than that in terms of transparency, and it turned out part of that was off-chain lending to the tune of $93 million that went away." Source The critical issue: depositors could not distinguish between a genuine stablecoin backed by cash and treasuries versus what M0 CEO Luca characterized as "a tokenized hedge fund running strategies." This misclassification risk carries significant regulatory and suitability implications for institutions evaluating DeFi yield products.

The panel emphasized that product naming conventions provide no protection. Using "USD" prefixes for products with complex, leveraged, or opaque backing structures constitutes mismarketing. Institutions must conduct independent classification analysis regardless of how products are labeled, treating any yield-bearing "stablecoin" as a potential structured product until proven otherwise through rigorous collateral verification.

Real-Time Exposure Tracking Now Essential

The interconnectedness of DeFi collateral creates systemic risk that current monitoring infrastructure fails to capture. MV Capital COO Gitis explained that "recent events regarding Stream Finance and Elixir basically showcase the interconnectedness of these asset backings or vaults, which kind of create a systemic risk if they're not tracked in real time." Source Different assets across different vaults may share exposure to the same underlying collateral, and without real-time reconciliation, a single failure can propagate across the entire DeFi landscape.

The industry direction is clear: protocols and institutional allocators must develop capabilities to reconcile assets versus their total supply in real time whenever new assets are minted or redeemed. For banks and asset managers, this means implementing or requiring monitoring systems that track cross-protocol exposure before deploying capital. Current DeFi monitoring infrastructure may be inadequate for institutional risk management standards—a gap that must be addressed before meaningful enterprise adoption can proceed safely.

🎟️ Yield Summit Series 2026

Where institutional allocators discuss risk controls, custody frameworks, and on-chain yield infrastructure.
Cannes (Mar 28-29) • Miami (May 4) • Amsterdam (Jun 1) • Singapore (Oct 5-6) • Abu Dhabi (Dec)

Register as Attendee (code INSTITUTIONAL-YIELD for 10% off) · Become a Sponsor

Skin-in-the-Game Curator Models Emerge

In the absence of regulatory recourse, DeFi protocols are developing alternative alignment mechanisms. CAP founder Benjamin described their approach: "You put your ETH, and if they don't repay, if you make a mistake, you lose your ETH." Source This private credit engine requires decision-makers to post their own collateral, creating direct financial consequences for poor underwriting. Benjamin emphasized this is critical "because today we have all these money managers in crypto that are essentially playing with people's money, and if they make a mistake, it's the user's money, not the people playing with it."

For institutional due diligence, skin-in-the-game mechanisms represent a partial substitute for traditional legal protections. Banks should evaluate manager co-investment requirements and loss-sharing mechanics as part of counterparty assessment. However, the legal enforceability of smart contract-based loss allocation and its interaction with bankruptcy frameworks remains an open question requiring further analysis.

Tokenized Treasuries as Institutional Collateral

The panel identified tokenized money market funds as an emerging institutional-grade collateral standard. M0 accepts Franklin Templeton's money market fund as collateral—a product Luca noted has "existed since the '80s and traded at NAV since the '80s." Source This represents a significant departure from the synthetic backings and off-chain loan exposures that characterized Stream Finance's collapse. BNY Mellon is reportedly considering a stablecoin reserve management fund, signaling broader institutional infrastructure development.

Luca argued that stablecoin reserve management is rapidly commoditizing: "There is Bridge, there is Anchorage, there are a long list of tokenized money market funds that are all kind of plain vanilla." The competitive differentiation is shifting toward interoperability and liquidity connectivity rather than reserve management sophistication. For institutions, this means due diligence should increasingly assess API architecture, integration capabilities, and liquidity routing rather than focusing solely on reserve composition. The four protocols identified as leading DeFi innovations—Uniswap, Aave, Compound/Morpho, and Euler—provide the infrastructure layer where institutional activity is concentrating.

RFP Frameworks for DeFi Manager Selection

Formal vendor selection processes are emerging as institutional best practice for curator selection. RockSolid, which launched six weeks ago with Rocket Pool and has seen $25 million in inflows, ran a structured RFP process to select their curator, Tulip Capital. Steve Pac explained: "We had this really good use case of like, were you guys exposed to Usual, and if yes, how and why, and if no, why not." Source The Usual depeg event provided a real-world stress test for evaluating curator risk management approaches.

Banks should develop standardized RFP templates for DeFi service provider selection, including questions on historical drawdowns, depeg exposures, leverage practices, and conflict of interest policies. The panel noted that institutional adoption is bifurcating: some clients want full-service managed solutions, while sophisticated in-house teams seek specific exposures. Gitis observed that large institutions may prefer private bilateral relationships with asset managers over public vault participation due to concerns about retail commingling and information leakage. Morpho V2's launch of a fixed-term, fixed-rate product signals evolution toward structures more familiar to traditional treasury management, though these carry additional complexity around early termination mechanics and secondary market liquidity. As Luca cautioned regarding high-yield strategies: "If we're getting 20%, it's because there is a risk—there are five times we're going to get wrecked."

🎟️ Continue the conversation at the Yield Summit Series 2026

500+ institutional leaders. Five global venues: Cannes (Mar 28-29) • Miami (May 4) • Amsterdam (Jun 1) • Singapore (Oct 5-6) • Abu Dhabi (Dec)

Register as Attendee — Code INSTITUTIONAL-YIELD for 10% off · Become a Sponsor

How to Position as an Allocator (Bank, Treasury, Fund)

Below is a compact, operational framework to translate the panel's lessons into institutional decision points. It assumes your governance will require independent verification of collateral, and it references observable panel precedents (e.g., Stream Finance disclosures, RockSolid RFPs, tokenized MMF collateral).

• Mandate fit & risk budget: explicitly document principal loss tolerance and a maximum on‑chain allocation per mandate; require yield decomposition and leverage caps (set firm stop thresholds tied to principal loss, liquidity drawdown, or collateral mismatch).

• Product selection: classify opportunities into core (staking / over‑collateralized lending), cash‑overlay (stablecoin yield backed by tokenized MMFs like Franklin), and structured/high‑yield vaults; allocate progressively more governance to structured sleeves and treat high nominal yields as indicative of hidden leverage.

• Custody, controls & monitoring: mandate institutional custody or legally segregated accounts where feasible, map admin keys and upgrade permissions, and require real‑time collateral reconciliation and cross‑vault exposure tracking before deployment (to address the kinds of off‑chain lending gaps seen in Stream Finance).

• Reporting, auditability & governance: require on‑chain proofs, third‑party attestations, standard RFP disclosures (historical drawdowns, depeg exposure, conflicts), and a documented governance approval process for each new counterparty or vault, mirroring RockSolid's RFP rigor.

• Counterparty alignment: require manager co‑investment or skin‑in‑the‑game clauses where practical (as CAP exemplifies) and commission legal analysis on smart‑contract loss allocation enforceability in insolvency scenarios.

• Phased approach with stop conditions: deploy via time‑boxed pilots with tight size limits, predefined stop conditions (e.g., X% NAV divergence, failed attestations, sustained monitoring alerts), and a clear scale‑criteria checklist (reconciled exposures, audit clean reports, governance sign‑offs) before increasing allocations.

Glossary

Vault (DeFi context)

A smart contract that pools user deposits and deploys them according to a predefined or curator-managed strategy. Used here to mean both simple allocation wrappers (e.g., Morpho vaults directing funds to specific lending markets) and more complex "liquid vaults" that may span multiple chains and protocols.

Why it matters: Vault architecture determines who controls asset allocation, how quickly funds can be withdrawn, and where counterparty risk concentrates—key inputs for any institutional due-diligence checklist.

Curator

An entity or individual responsible for selecting and rebalancing the protocols, markets, or strategies to which a vault's assets are allocated. Curators may operate under discretionary mandates or follow rules-based frameworks.

Why it matters: Curator competence and alignment directly affect portfolio risk; institutions should evaluate curator track records, RFP responses, and skin-in-the-game arrangements before committing capital.

ERC-4626

An Ethereum token standard that defines a common interface for yield-bearing vaults, enabling composability across DeFi protocols. It standardizes deposit, withdrawal, and share-accounting functions.

Why it matters: Standardization simplifies integration and auditing, but does not guarantee the quality of underlying collateral—institutions must still verify what backs each ERC-4626 vault.

Collateral Reconciliation

The process of continuously verifying that the assets reported as backing a token or vault match the actual on-chain (and, where applicable, off-chain) holdings. Real-time reconciliation compares minted supply against provable reserves.

Why it matters: Absence of real-time reconciliation was central to the Stream Finance failure; institutions should require automated reconciliation feeds before deploying material capital.

Cross-Vault Exposure

The risk that multiple vaults or products share exposure to the same underlying collateral or counterparty, creating hidden concentration. A single asset failure can then cascade across seemingly unrelated positions.

Why it matters: Without cross-vault tracking, diversification assumptions may be illusory; risk teams need aggregated exposure maps to set meaningful concentration limits.

Synthetic Backing

Collateral arrangements where the "backing" asset is itself a derivative, leveraged position, or claim on another protocol rather than a direct holding of cash, treasuries, or spot crypto. Used here in contrast to "plain vanilla" reserves.

Why it matters: Synthetic backings introduce layered counterparty and liquidation risks that are difficult to model; institutions should treat synthetic-backed products as structured instruments requiring enhanced scrutiny.

Depeg

An event in which a stablecoin or pegged asset trades materially away from its target value (typically $1.00). Depegs can result from collateral shortfalls, liquidity crises, or loss of market confidence.

Why it matters: Historical depeg behavior is a practical stress-test metric; RFP processes should probe how curators and protocols responded to past depeg events.

Tokenized Money Market Fund

A blockchain-based representation of shares in a regulated money market fund, allowing on-chain settlement while the underlying assets (e.g., T-bills, repo) remain with a traditional custodian. Franklin Templeton's fund is cited as an example.

Why it matters: Tokenized MMFs offer familiar, regulated collateral with decades of NAV stability, providing a higher-confidence reserve option than bespoke DeFi constructs.

Skin-in-the-Game (Curator Context)

A mechanism requiring curators or decision-makers to post their own capital as collateral, which is forfeited if their underwriting or allocation decisions result in losses. CAP's model is cited as an example.

Why it matters: In the absence of legal recourse, economic alignment via co-investment can partially substitute for fiduciary duty; institutions should quantify the size and seniority of curator stakes.

Over-Collateralized Lending

A lending structure where borrowers must deposit collateral worth more than the loan value (e.g., 150% collateralization). If collateral value falls, the position is liquidated to repay lenders.

Why it matters: Over-collateralization provides a buffer against borrower default; it is cited in the article as one of the safer DeFi yield sources for institutional allocators.

SMAs (Separately Managed Accounts)

Investment accounts where assets are held in the client's name and managed according to a tailored mandate, rather than commingled in a pooled fund. In DeFi, SMAs may be implemented via dedicated smart-contract wallets.

Why it matters: SMAs can address institutional concerns about retail commingling and information leakage, but require bespoke custody and reporting infrastructure.

Fund Wrappers

Legal structures (e.g., Cayman funds, Delaware LLCs) that hold on-chain assets on behalf of investors, providing familiar subscription/redemption mechanics and regulatory treatment. MV Capital uses fund wrappers alongside on-chain vaults.

Why it matters: Fund wrappers can satisfy compliance and fiduciary requirements that pure on-chain structures cannot, but introduce additional counterparty and operational layers.

Interoperability (Interop)

The ability of a stablecoin or token to move seamlessly across different blockchains, protocols, and liquidity venues without requiring manual bridging or fragmented liquidity pools.

Why it matters: As reserve management commoditizes, interoperability becomes a key differentiator; institutions should assess how easily assets can be redeployed or exited across venues.