#209 - Vaults

Jacob Robinson (0:03)

Who wouldn't want to know what the next trillion-dollar opportunity in finance is? When I spoke to quite a few people, some of the smartest people I know, they pointed to vaults. Vaults already hold billions of dollars in capital protected by nothing but computer code. And the US. Securities and Exchange Commission recently started asking questions publicly about them. So in this episode, we're going to figure out what vaults actually are, why the money is flooding in, and whether the law is about to catch up to them.

Here's why all this matters. In 2024, passively managed US funds hit $13.3 trillion, passing the active funds market for the first time in history. And that gap keeps widening. Now, index funds won by being cheap and predictable, saving investors roughly half a trillion dollars in fees since 2000 And vaults are coming for that model, exploding in popularity in part because of the promise that they offer.

Vee Lee, she's the General Counsel at Veda Labs, which is a vault provider, gives a great explainer on the role of vaults in the future of peer-to-peer finance.

Tuongvy Le (1:09)

So, you know, the analogy I like to make is, if you look at the traditional securities markets, over 90% of retail investors don't get access to the stock market by like day trading, right? They're not like constructing their own stock portfolios from scratch.

Over 90% of retail gets access to the capital markets through managed vehicles. So, if you think about what that means for on-chain capital markets, I think vaults are going to become that. They are the infrastructure for all sorts of managed vehicles. And I think that is how most people in the future are going to get access to DeFi.

Jacob Robinson (1:51)

Now, the thing is, when we say vaults, we're actually talking about a bunch of different things. And that's why this episode is going to dive into how they work, how members of the industry think it should be regulated, and where the risks are, as well as how the industry has evolved over time. By the end of this podcast, you should understand all the jargon, the history here, as well as the legal layer. But you don't need to be a lawyer, developer or finance expert to follow along. Welcome to the Law of Code Podcast, where we cover the legal layer of emerging tech. It's the world's only podcast that makes you smarter and better looking. Not that there's much to improve on in your case. I'm your host, Jacob Robinson, and in this episode, you'll hear from the creator of Crypto Vaults, Andre Cronje, from SEC Commissioner Hester Peirce, who recently put out a statement on Vaults, as well as builders at places like Steakhouse Financial and the Ethereum Foundation. You'll also hear from four of the top lawyers in this space, including Cahill's Lewis Cohen, Cooley's Rodrigo Seira, Aave's Linda Jeng, and Veda Labs' Vee Lee, who you've already heard from.

Now, my goal, I began this podcast with the goal of making it the internet's best podcast on vaults. I also spent over 100 non-billable hours on this episode, which means I'm not working for clients. And that's possible thanks to the sponsors of this podcast, including the presenting sponsor Altitude. You specifically should know about Altitude. Whether you have clients that transact with both stablecoins and fiat, maybe you do yourself. And that usually means a bunch of different bank accounts or expensive payment transfers. Altitude is a one stop shop payments platform for both stablecoins and fiat that has no charge when you send payments with stablecoins. They allow businesses to operate in US dollars and euro from anywhere in the world. They also offer things like virtual visa cards that includes up to 2% cash back on things startups actually spend on, like AI.

If you know anyone looking for a more efficient, cheaper financial operating system that pays them to use it, visit altitude.xyz forward slash law. That's altitude.xyz forward slash law to learn more.

Now, there are a few reasons why Altitude is extremely popular, and there are also quite a few reasons why Vaults are exploding in popularity, why they might be the most important part of the future of finance. We'll begin there after a brief legal disclaimer.

SPEAKER_3 (4:13)

Anything mentioned in this episode by Jacob Robinson or his guest is not legal advice or investment advice. All opinions are Jacob's and his guest's alone.

This show is solely for information and entertainment purposes only. Jacob and his guests are not your lawyers, nor are they investment advisors.

Jacob Robinson (4:28)

So what do we mean when we say Vaults? When I hear the word Vault, the first thing that comes to mind is the type that George Clooney and Brad Pitt break into in Oceans 11 and Oceans 12 and Oceans 13 Somewhere you store something valuable. That's not actually what happens with these Vaults. It's a bit different. It's also not where the word Vault came from. The root of the word Vault is Vaute, which means an arched roof in Old French, a vaulted ceiling. That's because from Ancient Egypt to the Middle Ages, if you wanted to build an underground room, you'd use a vaulted roof. Think about it. The arch spreads that weight of the earth above to the sides instead of, if it was a flat roof, taking it all in the middle. A curved underground ceiling therefore can hold much more weight than a flat one. So these underground rooms were built with vaulted ceilings. Because they were so expensive and difficult to build, they were really only worth building for things you really needed underground. Things like grain, maybe gold, dead kings or prisoners. It became a place where you'd lock things up, where valuables would go.