- The primary focus of the strategy is on lending USDC stablecoins via overcollateralized pools on Morpho.
- Bitwise indicates a target yield of up to 6%, depending on prevailing market dynamics.
- This launch exemplifies a wider trend among asset managers towards developing and managing on-chain infrastructure.
On January 26, Bitwise announced a pivotal shift beyond traditional exchange-traded products, unveiling its inaugural non-custodial on-chain yield strategy to deepen its engagement with decentralized finance.
The newly introduced product is described as an on-chain vault, meticulously curated by Bitwise, yet fully executed through smart contracts.
Investors maintain full control over their assets while Bitwise orchestrates capital allocation across decentralized lending marketplaces.
This initiative underscores a growing trend of traditional crypto asset managers venturing into direct DeFi opportunities rather than relying solely on regulated frameworks.
Structure of the Non-Custodial Vault
The new offering is defined as a non-custodial vault, ensuring that users retain control over their funds without transferring them to Bitwise or any centralized entity.
Instead, assets remain in wallets controlled by users and are deployed on-chain according to established protocols.
While Bitwise regulates strategy parameters, all transactions are conducted transparently on public blockchains.
This model is particularly appealing to investors seeking on-chain yield opportunities without compromising asset custody.
Moreover, all positions are openly accessible on-chain, allowing users to monitor fund deployments in real time.
Bitwise presents this setup as a blend of professional portfolio management and the foundational concepts of decentralized finance.
Focus on Stablecoin Yields
Initially, the vault will concentrate on lending through stablecoins, beginning with USD Coin (USDC).
Funds that are deposited will be directed towards overcollateralized lending pools, where borrowers must deposit more collateral than they seek to loan.
Such a structure aims to mitigate counterparty risks compared to undercollateralized lending models.
Built on the Morpho protocol, the strategy enables asset managers to craft custom lending strategies while leveraging standardized smart contracts.
Currently, Bitwise targets potential yields of up to 6% annually, contingent upon market conditions.
It is crucial to note that yields will fluctuate in accordance with on-chain supply and demand, rather than being set or guaranteed.
On-Chain Risk Management
Jonathan Man, CFA, who leads the firm’s multi-strategy solutions group, is at the helm of strategy design and ongoing risk monitoring.
The vault leverages Bitwise’s existing research, trading, and risk management frameworks that have been fine-tuned through years of managing crypto investment portfolios.
Smart contracts govern the execution of all positions, ensuring automatic management according to predetermined guidelines, while the system’s transparency allows users to verify activities independently.
As of now, Bitwise has not provided performance metrics, noting that the vault is still at an early stage of development.
Asset Managers Embrace DeFi Infrastructure
The Morpho vault marks Bitwise’s inaugural foray into non-custodial DeFi strategies.
Historically, the firm has been largely identified with exchange-traded products and research tailored to conventional investors.
This recent launch signals a strategic pivot towards creating and managing on-chain tools, moving beyond merely providing off-chain exposure.
Morpho has emerged as a favored platform for sophisticated DeFi strategies, enabling asset managers to deploy resources programmatically while ensuring on-chain transparency.
Bitwise has expressed its vision of on-chain vaults as a burgeoning segment of the crypto market and has plans for further exploration of additional strategies in the future.
Although specific timelines for such expansions remain undisclosed, Bitwise views the vault as an initial step in a broader on-chain strategy roadmap.
As more capital is directed towards blockchain-based finance, Bitwise’s actions signify that asset managers are increasingly recognizing DeFi as fundamental financial infrastructure rather than just a passing experiment.
