Inside Upshift: Building the Future of Onchain Vaults | Aya Kantorovich

There is a notable increase in acquisition discussions among vault providers, emphasizing their essential role in the market. The ability to continuously calculate Net Asset Value (NAV) is becoming critical as asset issuers transition on-chain, requiring the right talent and service capabilities. Aya Kantorovich, co-CEO of Upshift, shares insights into the company, which serves as a multi-chain, multi-protocol vault infrastructure provider. Upshift collaborates with major wallet providers, exchanges, and neobanks to launch various vault types, aiming to establish itself as a core vault provider on Solana with a total value locked (TVL) of around $550 million. The company targets diverse use cases, including DeFi, C-Fi, PayFi, and Real World Assets (RWAs), emphasizing transparency and counterparty risk management.

The launch of August, an on-chain prime focusing on cross-margining across financial instruments, reflects growing institutional interest in Upshift's infrastructure. August enables users to monitor their health factors and positions while using assets as collateral for loans. The development of vaults that aggregate health factors and positions across chains and protocols was driven by customer demand and a commitment to enhancing client experience. Aya discusses the importance of understanding walled gardens and off-chain mechanisms, especially given recent market challenges, including hacks. The conversation highlights the relationship between August and Upshift, noting that the decision to build vaults was unexpected in 2022.

The discussion addresses the complexities of instant settlement on-chain and the rapid movement of funds by hackers, comparing recent hacks to past incidents in both crypto and traditional finance. The need for continuous learning and vigilance regarding risk vectors in the crypto space is underscored, along with the importance of security measures amid an evolving threat landscape. Best practices from both Web 2 and Web 3 companies are explored, emphasizing that security concerns are universal. Upshift's vaults prioritize security and conduct risk underwriting reviews for all partners, with recent incidents highlighting the necessity of alert systems for asset movements.

Upshift's vault offerings are evolving, focusing on isolating risk with various strategies tailored to different personas and distribution partners across multiple chains and protocols. The client base has expanded from crypto-native users to a wider range of distribution partners. Many users are fully KYC'd, leading to distinct product needs compared to DeFi-native users. This KYC requirement has created opportunities for commodity tokenized RWA strategies. The speaker emphasizes a strong interest in credit, focusing on redemptions and credit facilities rather than just over-collateralized lending. Recent strategies indicate a demand for duration mismatch, where users may need to trade assets quickly during market fluctuations.

Vaults serve as a deposit withdrawal function that raises capital for various product types and connects DeFi, C-Fi, and TradFi. There is increasing institutional interest in vaults due to their operational efficiency and potential to create new market opportunities. The high operational overhead of traditional structures makes vaults appealing for their cost-effectiveness and 24/7 operation. Key considerations for vaults include accurate NAV accounting, pricing, reporting, and tax compliance.

Aya expresses enthusiasm for advancing vault technology and its integration into traditional finance, highlighting the need for a different technological stack for on-chain protocols. They acknowledge Solana's efforts in developing the vault construct and RC4626, with collaboration from various working groups and core partners in the payment sector. Critiques of the current on-chain trading experience point to issues like multiple button clicks and security vulnerabilities that undermine user trust. The vault construct is seen as beneficial for offering seamless deposit and withdrawal processes while managing backend operations.

The conversation shifts towards integrating on-chain markets into existing financial systems, envisioning a future where users engage with blockchain technology without needing to be aware of it. Past challenges of blockchain technology being inefficient and buggy are acknowledged, but improvements in consumer products are noted. Upshift's deployment on various EVM chains and plans for a Gito Sol vault, along with other vaults focused on RWAs, are confirmed.

The importance of diversification in trading is discussed, paralleling traditional finance's relationships with multiple brokerages. The goal is to manage risk while providing diversified options on Solana. Excitement surrounds new features, including perpetual trading and delta-neutral strategies, as well as the interest in bringing non-Bitcoin correlated yields to on-chain markets. Transparency in operations is emphasized, with a focus on avoiding "black boxes" in strategies, ensuring users have clear information about their investments.

Curators play a vital role, with strengths in market making, credit markets, and asset management. Key factors for curators include liquidity, risk underwriting, regulatory status, and strategy latency. Security measures involve operations within a "walled garden," utilizing whitelisting and multi-signature approval processes for new assets and protocols. The curator develops vault strategies centered on specific themes or protocols, prioritizing asset security to prevent hacks and ensure a secure infrastructure.

Market fluctuations have impacted users unexpectedly, and the on-chain capital ecosystem is gradually attracting larger players. The speaker expresses skepticism about certain high-risk practices and highlights their platform's TVL performance. The focus is on creating sustainable products that yield returns for users rather than relying on short-term strategies. Interest in new product suites like pay-fi and RWAs is growing, as they offer competitive yields compared to traditional finance.

Vaults are viewed as essential infrastructure, provided they meet RIA requirements for traditional finance and fintechs. There is growing interest in tokenized and crypto assets within vaults, with existing structures like ETFs and index funds already established. The expectation is that vault providers will integrate with large institutions to support fully tokenized assets within the next two years. The upcoming U.S. midterms may influence crypto regulation, with potential momentum or obstacles anticipated.

The conversation highlights the urgent need for traditional trading platforms to adapt to on-chain trading to avoid losing market share. Aya emphasizes the first mover advantage of companies like BlackRock, indicating a shift towards on-chain markets driven by attractive margins for asset issuers. The discussion also touches on the challenges of transitioning to a 24/7 trading environment, with ongoing competition between crypto platforms and established services. The need for the right talent and technology is crucial for servicing a 24/7 market, and the complexities of building in-house solutions may lead to increased acquisition interest.

Anticipation for a busy year of acquisitions in both the crypto and fintech sectors is expressed, with larger businesses exploring partnerships and in-house development for new products. Prediction markets are gaining traction, particularly with the upcoming 2024 U.S. presidential election. The conversation speculates on the future of prediction markets, emphasizing the importance of liquidity and the potential impact of major platforms launching prediction markets. Upshift's upcoming projects include launching vaults on Solana focused on real-world assets and introducing uncorrelated Bitcoin yield to the broader crypto market.