Morpho vault deposits surge 51% in Q3, but S&P’s new rules target withdrawal concentration

TechFlow Summary:Morpho vaults attracted $2.12 billion in Q3, with new channels from Robinhood and Circle contributing nearly a third of the incremental growth. However, S&P Global's simultaneously launched vault risk assessment framework brings "largest depositor concentration" and "actual withdrawal capacity" into sharp focus, serving as both validation and a stress test for the DeFi lending sector's pivot toward traditional finance.

Morpho vault deposits grew 51% in Q3. During the same period, Robinhood integrated its lending vaults into its app, and Circle’s Arc mainnet officially went live. Meanwhile, as more players entered, competition among curators intensified. S&P also announced the launch of a new vault risk assessment framework, VRA, specifically examining depositors' actual ability to withdraw cash. Even when collateralizing similar assets, different vaults vary significantly in withdrawal channels and deposit concentration.

S&P launched VRA (Digital Asset Market Vault Risk Assessment) on October 4, with initial evaluation results yet to be published. Sky Frontier Foundation announced on October 7 that it received a Moody’s B3 counterparty risk rating. Sky’s funds are allocated through Spark and Grove, making it the largest depositor in 3 out of Morpho’s top 12 vaults.

As of September 30, Morpho vaults held $6.26 billion in net deposits, a 51% increase in Q3. Robinhood Earn went live on July 1, and Uniswap Earn launched on July 30. Coinbase has already listed the Steakhouse USDC vault on Base, which opened on September 16, where Morpho has been operating since day one.

Of the 102 vaults tracked, Bitcoin and Ethereum underwrote loans backing 57% of deposits. S&P lists both assets as optimal collateral. In its six-point asset scoring system (where lower scores indicate higher safety), both fall within the 1-to-3 range; USD stablecoins support another 21%.

Vaults with less than 10% cash holdings saw their deposit share estimated to rise from 21.8% to 38.5% in Q3. Among the 217 vaults tracked, 99% of deposits require at least a two-day waiting period after risk adjustments before they can be withdrawn, and 97% are covered by guardian or sentinel mechanisms.

Robinhood Chain and Arc Combined for $670 Million in Vault Deposits

Morpho Blue pairs only one collateral asset and one loan asset per market, while curated vaults spread deposits across multiple markets. The protocol keeps each market isolated; vaults absorb losses within the specific markets they invest in. App distributors, such as CEX Earn products, typically select a curator to manage their vault, with the curator responsible for selecting markets, limits, and withdrawal paths.

Morpho Midnight also launched in July, offering fixed-term, multi-collateral credit products.

Uniswap launched Earn on July 30, introducing three Morpho vaults curated by Gauntlet on Ethereum. Zama opened confidential access to 16 Morpho vaults on September 15. Robinhood Chain and Arc combined to add $670 million in vault deposits in Q3, accounting for 32% of Morpho’s $2.12 billion quarterly net increase. The former rose from $2 million on June 30 to $507 million on September 30, almost entirely in Steakhouse USDG; the latter reached $166 million.

S&P Global Officially Enters the Arena

At the end of Q3, Morpho’s total value locked was approximately $11 billion, with active loans around $5.5 billion. TVL grew nearly 20-fold over two years, while active loans increased from ~$3.47 billion in June 2026 to ~$5.73 billion on October 10, a 65% growth over roughly four months. These figures did not escape the notice of traditional financial giants. S&P Global now plans to release its first batch of vault ratings this year, adding curator, liquidity, and operational risk reviews.

In S&P’s scoring system, 1 represents the lowest risk and 6 the highest. S&P first scores the markets permitted under the vault’s approved strategy, then evaluates curator quality and liquidity, where cash levels and top depositor situations directly impact the liquidity score. The final score can be at most 2 points better than the lower of the curator or liquidity scores. Separate caps are then applied to blockchain, protocol, governance, and security risks. Finally, scores 1 through 6 are mapped to ratings from AAA (v) down to B (v); CCC (v) to D (v) cover impaired vaults. Importantly, VRA is not a credit rating nor a yield forecast.

Bitcoin and Ethereum Underpin the Majority of Vault Loans

In September, among the 102 tracked vaults, Bitcoin and Ethereum backed 57% of deposits. S&P’s asset scoring (1 lowest risk, 6 highest) rates wrapped Ethereum at 1 point, the best-liquidized staked Ethereum and wrapped Bitcoin at 2 points, and less liquid versions at 3 points. USD stablecoins score between 3 and 5 based on depegging risk, while tokenized real-world assets start at the weaker end of the scale. These 102 vaults hold 94% of net deposits, with USD stablecoins backing 21% of them.

Bitwise launched the PAPY vault on September 2, lending AUSD against tokenized real-world assets, expanding to Arc on September 16. Sentora launched the PYUSD vault on August 26, lending against Huma’s PST with trade receivables as the underlying asset. This indicates that rapid expansion in the speed and breadth of collateral and credit portfolios is underway, with native DeFi institutions and traditional finance players competing in the same arena.

Spark and Grove Are Largest Deposit Holders in Three Biggest Vaults

Among 206 vaults with at least $1 million in total deposits as of the September 30 close, vaults where the largest wallet holds over 20% of deposits accounted for 74% of net deposits combined. This concentration level meets S&P’s threshold for a market risk score of no more than 3.

In 8 of the 12 largest vaults, the largest depositor’s holding exceeded the vault’s cash reserves. These 8 vaults collectively held 66% of the net deposits of the 12 largest vaults as of the September 30 close.

In 3 of these 8 vaults, the largest depositor is an allocator for Spark or Grove, both deploying Sky’s capital. Spark’s ALM Proxy holds nearly all deposits in the Spark USDC Vault and all deposits in the Sentora x Spark RLUSD. Grove’s allocator holds 40% of Steakhouse Prime USDC. In two retail-focused vaults among the 12—Steakhouse USDG and Steakhouse USDC on Coinbase—the largest depositor accounts for only 2% to 3%.

S&P still considers wallet count “an imperfect metric”: a single address can hold deposits for thousands of users, while multiple addresses may belong to the same entity.

Curators Lock Risk Changes for Several Days

Of the 217 vaults, 99% of net deposits face a minimum two-day waiting period for risk changes. Of those, 52% wait seven days or longer. Guardians or sentinels can cancel pending changes, covering 97% of these deposits. S&P’s VRA lists these time locks as one of the stronger features in vault governance. These vaults hold approximately 99% of all net deposits.

S&P’s list also includes fee time locks, although V1 fee changes take effect immediately. This affects interest accrued after the change, with fees reaching up to 50%. V2 allows curators to set time locks on their fees; 13% of measured V2 deposits reside in vaults that do so.

Despite this, on August 23, attackers seized control of Term’s USDC and ETH vaults using a malicious governance proposal. Approximately $6.8 million flowed out of Parity Core ETH on Morpho during the attack, with the associated WETH/wstETH utilization spike cleared in roughly eight minutes. The attack targeted Term’s vault governance; its direct fixed-rate lending contracts remained intact.

As of October 1, Term had recovered $987,095, while recorded USDC depositor losses stood at $1.64 million. No stolen ETH was recovered; rescued fixed-rate loans continue to generate principal and interest, with Term planning its first distribution on October 2.

The Two Largest Curators in Q3 Held an Average of 61.9% of Net Deposits

The two largest daily curators averaged 61.9% of net vault deposits in Q3, down from 71.0% in Q1 but up from 46.9% year-over-year following November losses. Deposits became concentrated in Steakhouse and Gauntlet. In 2026, Sentora’s deposit share grew from 5.4% in Q1 to 17.5% in Q3, taking second place from Gauntlet, whose share fell from 29.8% to 17.4%. Steakhouse averaged 43.1% in Q3.

Peirce Raised Security Concerns Regarding Vault Discretion in July

On July 22, SEC Commissioner Hester M. Peirce placed vaults on a spectrum ranging from fixed allocation in immutable code to curator discretion. Second-largest curator Sentora actually met with the SEC crypto task force on August 10, asking when a curator’s discretion constitutes an “effort of management” that would classify a vault as a security.

Morpho founder Paul Frambot also drew a distinction between non-discretionary and discretionary vaults, listing time locks, sentinels, and in-kind withdrawals as protective measures, noting that each vault’s configuration dictates its safeguards and withdrawal rights.

Credora, under RedStone, began rating Morpho and Spark vaults on November 6, 2025. On July 28, it changed how market risk factors into Morpho V1 and V2 vault ratings. The method combines probability of default, severity of loss, and allocation into a single probability of exceeding the vault’s loss threshold. Most ratings remained unchanged; some were downgraded, primarily by one notch. Additionally, S&P’s methodology will evaluate allowed strategies and withdrawal provisions via analyst judgment.

Withdrawal Access Should Be Weighed Equally Against Depositor Concentration

Broadening distribution expanded Morpho’s vault deposits. Nevertheless, it is worth noting that withdrawal access may vary significantly across different products. Curators choose allocation and liquidity routes, while borrowing demand affects the cash available for standard withdrawals. S&P’s initial assessment will integrate these choices with curator quality and operational risk.

Alea has no commercial relationship with S&P Global or any mentioned curators.

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