How to use an onchain vault in a treasury product

Vaults for treasury and fund teams · 2 of 3

A vault gives you subscription and redemption in the asset itself, continuously, without an administrator's calendar in the middle.

There are three ways to use a vault inside a product: as the yield engine behind a balance your customers already hold, as a sleeve of your own treasury, or as a branded strategy you sell to clients. The vault handles subscription, redemption, accounting and risk controls in all three. You add distribution and the strategy mandate.

What does the wrapper actually give you?

Subscription and redemption happen in the asset itself. You send USDC and receive shares; you return shares and receive USDC plus whatever accrued. There's no cash leg, no wire, no subscription window to hit and no administrator striking a price at a fixed hour.

If you work with ETFs, the mechanic will be familiar. An authorised participant delivers a basket of securities and gets fund shares back, instead of handing over cash for the manager to invest. A vault has the same shape: assets in, units out, units in, assets out.

Two ways a vault goes further than an ETF creation basket:

• It's continuous. Creation and redemption run at any hour, weekends included, rather than once a day at the close.
• There's no gatekeeper. Any whitelisted address can subscribe and redeem directly. You don't need an authorised participant to intermediate.

The comparison stops at the settlement mechanic. A vault redeems you in the asset you deposited, and to pay you it draws on its buffer or unwinds something. The fund-level tax argument behind ETF in-kind redemption (the fund never sells and realises no gain) doesn't carry across automatically as a result. Tax treatment is a question for your own advisers.

How does a vault compare to an ETP, a tokenised fund and an SMA?

Launch time, minimum and exit differ most across the three. Yield follows from the strategy inside, which the strategies onchain vaults run sets out.

A tokenised fund carries one structural cost. The Financial Stability Board devotes a section of its 2024 review to the liquidity and maturity mismatch that appears when a tokenised claim trades continuously but the asset behind it settles slowly. A buffer in front of the position closes that gap.

Launch time changes product decisions most. A vault gets a product in front of clients in days to weeks. You can find out whether the demand is there before committing to a longer structure, and plenty of firms end up running both.

What can you build with one?

Four patterns cover most of what firms actually ship.

The first and third look similar, and they split on who holds the mandate. An earn product switches on yield for money already sitting with you, and someone else runs the strategy. A branded product is something your clients allocate to deliberately, with the strategy view and the client reporting yours.

The treasury sleeve is usually the easiest place to start, because you're the client. You can size it small and see how the reporting lands with your own finance function before anything touches a customer. We can also spin up a test vault so you can run deposits, redemptions and the NAV pull end to end first.

How do the fees work?

A fee can sit in three places, and it helps to know which apply before modelling anything.

• Management fee. Charged on assets, accrued into the share price. Changes to it are subject to the vault's timelock.
• Performance fee. Charged on return, where the mandate includes one. Common when a curator is running an active strategy.
• Instant redemption fee. Paid by whoever wants out ahead of the normal processing cycle, and it's what makes same-day exit viable. This one is not timelocked. Confirm the current level before relying on it.

If you're distributing to your own customers, the economics usually work as a share of the fee on the balances you bring. Accounting, fees and fund flows documents how fees accrue and settle.

What do you decide before you start?

The custodian is the step teams tend to forget. Your custodian holds the receipt token, which makes them a party to the arrangement. Confirm it early with Anchorage, BitGo or whoever holds your assets.

Who holds what once it's live?

You hold the receipt token. Undeployed assets sit in the vault contract. Once capital goes to work it sits in the protocols and venues the strategy uses, and the vault's segregated subaccounts hold the resulting positions. Neither the infrastructure provider nor the curator can move depositor funds to an external wallet. Upshift is non-custodial vault infrastructure for stablecoin yield and operates the contracts, while the vault holds your assets.

Four parties sit around the vault, and each holds a different power. Our guide to the four parties around a vault covers who sets the mandate, who allocates, and what each one can't do.

Operator keys sit in MPC wallets via Fireblocks or Fordefi. Administrative control over a vault's proxy sits behind a multi-signature arrangement, with signers from more than one organisation. Most vaults implement ERC-4626, which means the share token behaves like any other token your systems already handle.

Risks come with the wrapper as well as the strategy. Contract risk has no analogue in a fund wrapper, these vaults carry no built-in smart contract cover, and yields move with borrowing demand and aren't guaranteed. Third-party cover for smart contract risk does exist in the market, from underwriters like Nexus Mutual and OpenCover, and it's arranged separately if you want it. Always make sure to do your own research and be aware of the above and any other risks before depositing.

What does the integration involve?

The vault already does the accounting and the withdrawal processing. At minimum you need three things:

• A deposit path from your custody account into the vault.
• A way to read NAV and positions. The vaults API covers the read side.
• Somewhere in your product for the balance to appear, whether that's an earn tab, a client statement or an internal treasury report.

If you want your own branded vault rather than a deposit into an existing one, that's Vault-as-a-Service, and Part 3 walks through what launching one actually takes.

Frequently asked questions

Can we test a vault before committing to a product?

Yes, and it's the normal path. We can spin up a test vault so you can put a small amount of your own balance through deposits, redemptions and the NAV pull end to end. That tells you how the strategy reporting lands with your finance function without a customer-facing launch.

How does a vault sit alongside a fund we run or plan to run?

They do different jobs. A fund is a regulated structure with an issuer, a transfer agent and a prospectus behind it. A vault is infrastructure your clients hold directly, and it reaches them in days to weeks. Firms commonly run both, using the vault for clients who want onchain settlement and continuous access. Whether a vault suits a given client base is a question for your own regulatory counsel.

Does in-kind redemption mean no taxable event?

Not by itself. A vault redeems you in the asset you deposited and may unwind something to pay you. The settlement mechanic resembles an ETF creation basket, and the tax treatment is a separate question for your own advisers.

Who chooses the strategy if we run our own vault?

You can appoint a curator or hold the mandate yourself. Either way the policy engine restricts what's reachable at chain, protocol, token and function level and enforces the mandate onchain. Upshift for curators covers how a mandate is set up.

How quickly can our clients get out?

Claimable redemptions process daily, and the lag depends on what has to be unwound. Most vaults offer instant redemption for a fee, subject to available liquidity, funded by a buffer held in front of the deployed positions.

What happens if we want to change the strategy later?

A curator reallocates inside the approved perimeter without depositor action. Widening the perimeter is a parameter change subject to the vault's timelock, which gives depositors notice before the mandate changes.

Keep reading

This series: Part 1 covers what a vault is and who holds the assets. This part covers using one in a product. Part 3 covers launching one for your own clients.

• The DeFi yield strategies onchain vaults run: the strategy shapes, the risk in each, and measured returns on live examples.
• Atomic redemption architecture: how the buffer funds an exit without unwinding the whole position.
• The coreUSDC meta-vault: one vault allocating across several underlying strategies.
• How traditional asset managers are controlling risk in DeFi: what the policy engine restricts and why allocators ask first.
• Why every financial product will run on vaults: the case for the vault as the wrapper these products ship inside.
• How much leverage sits behind a vault: sorting strategies into three risk tiers, measured on live vaults.