Vaults and Oracle Risk: Who decides and Who pays for it

Curated vaults have quickly become one of the most successful products in DeFi lending. Depositors are getting lending yield while no longer needing to manage the positions themselves, offloading that job to a vault curator. Institutions can also benefit by offering yield to their customers without running a lending desk. Morpho is currently the main venue on which these types of vaults are being deployed.

The model itself is simple. You deposit USDC into a vault, a curator then lends it out across a series of whitelisted Morpho markets, and borrowers post collateral against it. The depositor earns interest on their positions and the curator takes a cut of that interest as a performance fee. However, similar to standard onchain lending, if a borrower's collateral falls enough in value, their position is liquidated to ensure no bad debt occurs.