Morpho CEO Paul Frambot proposed dividing on-chain vaults into non-custodial and discretionary categories on September 24, 2026, prompting criticism from Aave founder Stani Kulechov, crypto attorney Gabriel Shapiro and vault infrastructure builders. The framework would classify vaults according to how much authority curators retain over deposited funds. Non-custodial vaults would use code-level safeguards such as timelocks, mandatory exit periods, immutable contracts and other user-approval or withdrawal mechanisms, while discretionary vaults would give managers broader control over allocation, leverage, market making and cross-chain deployment. Kulechov argued that a vault with a manager should not be described as truly non-custodial, citing early Yearn Finance vaults whose strategies operated autonomously through smart contracts. Critics also said the taxonomy could favor Morpho’s product positioning and blur distinctions relevant to custody, fiduciary duties and securities regulation. The debate follows approximately $36.39 million in liquidations involving Morpho’s PT-reUSD looped positions on August 25, 2026, after market manipulation temporarily pushed implied annual percentage yield to around 20 percent. Morpho did not mention those liquidations in its proposal. The protocol, which has roughly $16 billion in deposits across tens of thousands of markets, launched Morpho Vaults V2 earlier in 2026 and has expanded its traditional-finance links through integrations with Robinhood and Coinbase.