Paul Frambot, CEO of the DeFi lending protocol Morpho, proposed a new regulatory classification for onchain vaults on September 24. The framework divides these vaults into two categories: non-custodial, which relies on strict code-level constraints, and discretionary, where managers retain authority over investment strategies.
The proposal faced immediate criticism from industry figures, including Aave founder Stani Kulechov and attorney Gabriel Shapiro. Critics argue that the definition of non-custodial is inaccurate and may serve to benefit Morpho’s own product positioning rather than providing a neutral taxonomy for the industry.
Kulechov suggested that a truly non-custodial vault should operate without human intervention, citing early Yearn Finance vaults as a benchmark. Shapiro warned that self-classification by protocols could be interpreted as lobbying for favorable regulatory treatment, potentially complicating compliance for partners.
Morpho currently holds approximately $16 billion in total deposits and hosts tens of thousands of markets. The protocol has recently expanded its reach through integrations with Robinhood and Coinbase, making the classification of its vault architecture a significant factor for its institutional and retail partners.
