US-based BitGo, a crypto custody and infrastructure provider, unveiled plans for a decentralized finance (DeFi) vault product with Paris-based Morpho as its first partner, to meet institutional demand for access to onchain lending and yield strategies while providing regulated custody and oversight.
When clients deposit into the vault, their funds are deployed to a third-party onchain strategy, a 22 Jun statement said. BitGo Bank & Trust, the firm's national trust bank chartered by the US Office of the Comptroller of the Currency (OCC), holds a receipt token recording each client's claim. External infrastructure providers and independent risk managers will execute the strategies and set the risk parameters, with BitGo serving as the custodian of record.
Morpho Labs, which develops the protocol, will provide the underlying vault architecture, lending infrastructure and onchain execution systems that tap into increasing institutional interest in yield and lending opportunities onchain.
Custody layer addresses concerns
However, institutions have held back from DeFi amid worries about regulatory compliance with custody and asset controls. The new service adds a custody layer to users' assets to address those concerns.
"We believe institutions are looking for ways to access onchain opportunities but also expect the security and oversight that come with institutional custody," said Mike Belshe, CEO and co-founder of BitGo. The firm was founded in 2013 by Belshe and Ben Davenport and built its early business around multi-signature wallet security for institutional crypto holders.
Previously, BitGo integrated with Blueprint Finance's Concrete protocol, allowing clients to route assets to third-party onchain protocols while keeping them in qualified custody. The Morpho vault follows the same structure, with any returns generated by the third-party vault and protocol activity rather than by BitGo or its trust bank.
Morpho's institutional partners
The third-party approach is a way to package DeFi for institutions, using outside specialists for the parts of the stack that are better handled by firms with direct protocol expertise. This also allows BitGo to reduce operational and counterparty risk and avoid the cost and inefficiencies of recreating an in-house system.
Morpho, which has more than $11bn in deposits according to its statement, counts Coinbase, Bitwise Asset Management and Société Générale as integrator partners, institutions that build products on top of Morpho's protocol.