Today’s financial system is running on centuries-old laws and outdated technology. Many of the existing processes and limitations have ultimately inhibited equal access to financial resources and resulted in a system that is far slower, more fractured, and costlier than it needs to be. 

In the face of such a system, flexibility will ultimately prevail. Flexibility is not just an adjective or a noun, but a product mindset and economic philosophy. As the internet increases the speed at which we can communicate and connect, onchain financial markets can increase the speed at which we trade, transact, and earn.

But the ethos of flexibility must be adopted in order for onchain markets to succeed. 

‍

‍

Today’s financial world, with its preset hours of operation and many lingering analog systems and procedures, limits our collective financial prosperity and, in some cases, unnecessarily increases risk. If something is difficult or impossible to change and it breaks, customers may keep losing money to “rigid finance” until a workaround is found. 

Onchain markets, and cryptocurrency as a whole, were developed as a more flexible, liberating solution to the binds of the current financial system. Because of this, it only makes sense that our onchain infrastructure is flexible by design, too. 

The next iteration of our financial system should not repeat the mistakes of its predecessor, which has limited operating hours, slow processing times, functional limitations, unnecessary fees, and significant restrictions on who can access it. If onchain finance follows such a rigid path, it will fail to serve its purpose as a more adaptable and efficient alternative to the existing system. 

How ‘rigid finance’ harms investors

Let’s use a hypothetical scenario: Take "Jeff," a retail trader who uses a financial app to buy and sell stocks based on his own research reading public filings and earnings reports. Jeff has invested in a chip manufacturing company with plants overseas.

On Saturday morning, Jeff sees a report of a major earthquake off the coast of where this company manufactures its chips. Because he is very invested in this company, Jeff has been proactively tracking incidents like this, and recognizes the increased risk to the company before other investors. In light of the tragic disaster, he wants to be able to sell or short some of his stock, but isn’t able to because markets are closed. From Saturday night until Sunday, aftershock earthquakes closer to the plant then cause billions of dollars in damages, forcing the company to close its plant and evaluate whether it can continue to operate at all. 

If financial markets were open 24/7, Jeff could have reduced his exposure at the time of the first earthquake. Instead, he was forced to wait until market open on Monday, after the company had been irreparably damaged — and when everyone else had already begun selling too. This results in Jeff losing ten times more than he would have by selling or shorting at the sign of the first earthquake, which he would have been able to do with more flexible financial infrastructure. 

Limited market hours aren't the only trait of current systems that can cause issues, however. The current system is also inflexible with infrastructure that can't adapt.

Flexible neobanks need flexible vaults

But financial systems don’t have to be this way — and the tide is changing. 

Online estimates indicate that there are over 300 neobanks operating today. These platforms are increasing global financial access for those without access to traditional banks, enabling instant peer-to-peer and card payments, payroll features, financial services for businesses, tokenized stocks, DeFi yield on stablecoins, and more. By design, neobanks are more flexible than traditional banks.

But the competition among neobanks is heating up. Some are already failing to gain traction and stand out in the crowd, with over half a dozen shutting down last year alone.  

To enable competitive APYs on user deposits, neobanks are increasingly integrating onchain vaults as a way to give their customers yield on stablecoins. 

“Fintechs want the most flexibility possible. They want to be able to build different products for their different user bases. They don’t want to be locked in to any single protocol, chain, asset, or curator. All of this should be modular. That’s been our core design principle.” – Veda CEO Sun Raghupathi 

Neobanks are offering more services to more people than traditional “rigid finance.” Because of this, it doesn’t make sense for neobanks to deploy infrastructure that irrevocably limits where users can earn. 

Multifunctional architecture is more secure 

In DeFi, infrastructure with parallels to “rigid finance” has resulted in high opportunity costs and, in some cases, unnecessary losses for companies and investors. This can happen when rigid onchain infrastructure and systems don’t have adequate security controls, or don’t allow teams to adapt quickly when incidents occur. 

When DeFi exploits happen, flexible solutions can move faster to mitigate losses, while infrastructures with functional limitations can effectively leave retail investors, or the front-ends offering these services, on the hook. These incidents can be hacks and exploits, but also liquidity crunches, protocol freezes, and more. 

Veda’s vault deployments can reduce exposure to bad debt on lending protocols by reallocating deposits away from a protocol experiencing issues and toward alternative trusted yield sources. Unfortunately, not all vaults are able to do this, and it’s resulted in millions in losses for depositors across various past DeFi incidents. 

“The misconception is that institutions want DeFi to become TradFi. But I don’t think that’s actually true. I think they just want DeFi to be safe.” – TuongVy Le, Veda General Counsel

Onchain vaults need to be able to evolve over time without redeploying or asking users to move their funds. Flexible infrastructure, like what we’ve built at Veda, enhances vault security because it allows curators to rebalance allocations by removing funds from one lending protocol or market to another. This way, curators can do what they do best: Reduce risk for depositors, without ever requiring them to withdraw from the vault. 

Every team building an onchain yield product needs truly flexible infrastructure. This isn’t just a nice-to-have. It’s an essential part of proper risk management. 

Launching a product that uses a single protocol-only vault traps teams when incidents happen or yields decline, which can result in exacerbated losses, a degraded user experience, potential legal issues, and users fleeing the platform entirely. 

The future-proof solution

Our flexible ethos is why we developed the Veda BoringVault. Our infrastructure, which is always non-custodial by design, enables teams to deploy digital asset vaults without having to worry about which lending protocol will have the highest yields in six months or a year from now. 

Instead, the Veda vault can allocate deposits to one or more leading yield protocols and then re-allocate to another later when market demand shifts as part of a strategy update, like what Sentora has done with the Kraken Advanced USDC vault. Veda vault products can also migrate crosschain, like what we enabled for EtherFi. Changes like these can be facilitated seamlessly, without any user action required.

“It’s the flexibility that really makes the difference […] we wanted to find a partner that could grow with us and that could grow alongside us.” – Mark Greenberg, VP & Head of B2B at Kraken (Payward Services)

In a sense, the Veda vault acts as an important security and risk management layer on top of a team’s chosen yield source, activating the ability to easily rotate DeFi protocols at any time if needed for DeFi security or performance reasons.

It’s a feature that sounds simple until teams dig in and discover that multiprotocol allocation is architecturally impossible with most existing vault infrastructures. 

Locking into a single protocol or rigid vault infrastructure poses security and product risks teams don’t need to take.

At best, rigid vault infrastructure means yield eventually fizzles out, spurring users to take their money elsewhere. At worst, it results in millions of unnecessary losses as users are stuck on a protocol with bad debt. 

Choosing a vault provider — or whether to use one at all — is the most critical decision a team must make when building an Earn product and the biggest hidden pitfall. An inflexible solution limits how your product can grow and adapt, while a flexible one can continue to deliver the best experience for the end user for months and years to come.

After deploying with Veda, teams can change:

• Strategies
• Protocols
• Chains
• Deposit assets 
• Curators 
• Fees
• Withdrawal times
• Incentives and rewards

Which can be impossible to modify with alternative vault solutions once deployed.

Flexibility is what draws users to neobanks. 

It only makes sense that their vault infrastructure is flexible too.