Bitwise Asset Management has expanded its Premium RWA Vault, better known as PAPY, to Circle's Arc blockchain, where the product now leads yield rankings among Morpho vaults on the network, posting a net APY of 4.79%. The timing is significant in its own right: the vault went live the day Arc opened its public mainnet, putting an established asset manager on a brand-new network from its first day of operation.

How the PAPY-USDC vault works

The expansion went live on September 16, 2026, timed to coincide with the public mainnet launch of Arc. The new product, PAPY-USDC, runs on the Morpho lending protocol and is built on Morpho's Vault V2 architecture.

Users deposit USDC, and the vault lends those funds to borrowers who post tokenized real-world assets (RWAs) as collateral. The loans are overcollateralized, meaning borrowers must lock up more value than they take out, which gives lenders a cushion if conditions deteriorate. The design reflects a broader push in DeFi to accept tokenized real-world assets as loan collateral, connecting off-chain assets with onchain liquidity.

Accepted collateral includes Huma Finance's PST and sUSDai. The vault may also allocate to cirBTC markets, adding another potential lending. There is a symmetry to the venue as well: Arc is Circle's own network, and Circle also issues the USDC the vault accepts, so the lending asset and the chain it sits on trace back to the same issuer.

Bitwise acts as the vault's curator on a non-custodial basis and never holds depositors' funds directly. Instead, it sets the operating rules: which collateral qualifies, which loan-to-value ratios apply, and which interest-rate models the vault uses. That curator model departs from traditional fund management, where a manager typically relies on a custodian to hold client assets.

The numbers behind the vault

PAPY-USDC targets a variable APY of 5-6%. As of early October 2026, the vault reported a net APY between 4.8% and 5.55%, with the Morpho app showing 4.79%.

The fee structure is light. Bitwise charges a management fee of approximately 0.39-0.4%, and there is no performance fee.

Deposits remain modest so far. In early October 2026, the vault held between $418,000 and $422,000 in USDC, while its total capacity is capped at roughly $1 billion — leaving the overwhelming majority of that headroom unused, which makes deposit growth the clearest early indicator of demand to watch. The vault follows the ERC-4626 tokenized-vault standard and carries no lock-up requirements, meaning depositors can withdraw at any time, subject to the vault's available liquidity.

A second act after Ethereum

Arc is not PAPY's first stop. Bitwise launched a PAPY-AUSD vault on Ethereum on September 2, 2026, and that version attracted more than $20 million in deposits within two weeks. The Arc deployment arrived just two weeks after the Ethereum launch, with the key difference being the currency: the Arc vault is built around USDC from day one. The gap in early traction is stark — the Ethereum vault's two-week haul of more than $20 million is roughly 50 times the Arc vault's current balance — and how deposits develop on the newer network is the metric to watch for whether similar demand materializes.

Bitwise brings an established footprint to the effort, with $9 billion in client assets.

Implications for DeFi lending and RWA yield

For Morpho, the expansion reinforces its role as infrastructure that curators can deploy across multiple networks, with Bitwise now running PAPY on Morpho on both Ethereum and Arc. For the RWA lending category more broadly, the vault doubles as an early demand gauge for how newly launched networks absorb products from established asset managers.

Reported yields have been variable, ranging from 4.8% to 5.55% in recent reporting and at times falling short of the 5-6% target. Collateral quality is the other key variable: overcollateralization offers a layer of protection, but the vault's safety ultimately depends on how well assets such as Huma's PST and sUSDai hold their value and remain liquid. From here, the checkpoints are concrete: whether the vault begins allocating to cirBTC markets, whether net APY settles into its 5-6% target band, and how quickly deposits close the distance to the $1 billion cap.

Source: CryptoBriefing