SEC Commissioner Hester Peirce said crypto vaults and on-chain lending products may be subject to US securities laws, and urged developers to evaluate whether products that actively manage users’ assets require regulatory compliance.
In a statement released Wednesday, Peirce said that crypto vaults and lending strategies that involve discretionary decisions, including allocating assets, selecting yield-generating activities, establishing lending terms, and determining liquidation thresholds, may fall within the scope of the federal securities laws depending on their structure and operation.
He said some vaults could be treated as securities offerings or investment companies, while parties managing vault allocations or lending parameters could also trigger investment advisor requirements.
Peirce said some on-chain loans may also qualify as securities depending on how they are structured, distributed and used.
“Moving activities that fall within the scope of the federal securities laws on-chain, as a general matter, does not move those activities outside the scope of the laws administered by the Commission,” Peirce said.
Peirce invited developers and operators to ask the SEC whether their products can fall within its jurisdiction and asked for comments on how existing rules could better suit on-chain finance.
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Crypto Vaults Grow as Regulators Scrutinize On-Chain Yield Products
Crypto vaults pool users’ assets into on-chain strategies designed to generate returns through lending markets, staking, or liquidity pools. Its use has expanded this year as companies integrate sophisticated DeFi strategies into products aimed at both retail and institutional investors.
In April, Sentora opened its Smart Yield platform to the public, allowing users to compare and access DeFi vaults based on strategy, performance, and risk metrics. Previously, Wallet on Telegram launched self-custodial Bitcoin (BTC), Ether (ETH), and USDT (USDT) vaults that provide automated yield generation without requiring users to transfer assets to a centralized custodian.
Kraken followed up in May with a Bitcoin vault offering up to 2.5% variable APY by deploying Bitcoin wrapped in decentralized lending protocols including Aave and Morpho. Rewards are paid in Bitcoin and fluctuate based on lending demand in the underlying markets.
The products have also exposed users to technical risks. In December, decentralized finance protocol Yearn revealed a roughly $9 million exploit affecting its legacy yETH yield vault, although the protocol said its V2 and V3 vaults were not affected.
If cryptocurrency vaults were subject to federal securities laws, their operators could be required to register with the SEC or qualify for exemptions while complying with disclosure and other regulatory requirements.
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