What's Next for Vaults? | Steakhouse Co-Founder, Adrian Cachinero

**David** (0:04)
Bankless Nation, I'm here with Adrian Cachinero. He is the co-founder of Steakhouse. Steakhouse is a curator in the Vaults space, and we're going to learn a lot about Vaults today. Adrian, welcome to the show.

**Adrian Cachinero** (0:14)
Hey, nice to be here.

**David** (0:15)
Adrian, how bullish are you on Vaults as a sector?

**Adrian Cachinero** (0:21)
Obviously, very bullish. But I think it would be cool to try and unpack a little bit what Vaults means.
It's a very jargon-loaded term. It can mean a lot of things. We're obviously very bullish on the types of Vaults that we're building. And we're bullish on the types of Vaults that nobody is building yet. But as an idea, the idea that you can intermediate a value exchange without an intermediary or without relinquishing custody or doing it in a way that's purely ministerial or without discretion, I think this is quite new for finance. And to the degree that Vaults enables this is bullish, I think, because it represents a more efficient market and we believe one that offers better investor protections as well.

**David** (1:16)
Yeah, maybe, I think it's worth going into just the word Vault, the Vault word, maybe the best parallel to talk about what a Vault is, is to like talk about the token. It's like, what's a token? Well, a token could be anything. Like it's really just a symbol, a token of whatever we want to ascribe to it. We can ascribe to it meaning, value, mechanisms via code. And so is a token a security or that depends? Is a token a utility? Well, that depends. And like Vault, a Vault is very similarly as broad and undefined as the word token. And maybe that is like a starting place helps illustrate just the immense breadth of category of what a Vault can do. Maybe you can take that and run with it. And also maybe give us a little bit of a history lesson about the Vault sector, how Vaults came to be and how it's grown into what it is today.

**Adrian Cachinero** (2:13)
Yeah, I think that's definitely the right way to think about it. Very much along the lines of the definition of what's a token? Oh, a token can be so many things. Similarly, a Vault, what is a Vault? A Vault can be so many things.
I think DeFi Summer with the food farms, you know, the food farm era and the yams and all this. That was really where you saw the first Vaults with this wire. They had the first smart contract architecture that would allow people using Vaults to delegate, basically, the selection of, let's say, a strategy to a smart contract.
But they only really took off, I think they really took off with Morpho. Morpho invented the, well, maybe didn't invent, Morpho pioneered the concept of an isolated risk market for borrow and lend. This had obviously been tried before in different contexts, but Morpho really, let's say, formalized it, hit it with an appropriate level of go-to-market, you know, found a good fit. The difficulty with an isolated borrow-lend market is that you lose a lot of the network effects from a pooled lending model. So something like Aave, where all the liquidity is pooled, has the benefit of rehypertication of collateral. So you can deposit the collateral and borrow against it at the same time. With Morpho, you lose that. So they used the idea of a vault as a way of aggregating liquidity around these isolated markets to recapture and re-bundle some of that network effect again.

**David** (3:47)
Would you say that Morpho kind of produced the basic atomic units of markets that when composed together via vaults, which is what a vault does, turns it into something bigger? But it was important for the foundation of the vault industry to have these isolated lending markets to become very specific and opinionated and kind of like fit the demands of the market. And with these atomic units going down just to the bare basement of like the borrowing and lending markets, we can start to build up more stable structures because we have all these atomic units of these isolated risk markets. Would you say that's a fair description?

**Adrian Cachinero** (4:30)
Yeah, for sure. It's a philosophy that we very much agree with. I think it speaks to, like the experiments with DeFi that work the best tend to take this direction. Smart contracts are very sensitive infrastructure to build anything on. They can go, like when they go wrong, they go very wrong. So you should aim to reduce the risk surface as much as possible. You have governance heavy, heavily controlled, like DAO governed, whatever models from the early stages of DeFi. And the more forward approach is to try and boil it down back to, what's the simplest possible, like smart contract as a spreadsheet. Like I just want the spreadsheet formula to calculate how much interest is accrued on one side and owed to the other. And that's it. That makes the surface much smaller.