SEC Commissioner Hester Peirce said crypto vaults and onchain lending strategies may be subject to federal securities laws when operators make managerial decisions involving user assets, lending terms or the allocation of yield.

Crypto vaults generally use smart contracts to deploy deposited digital assets across staking, lending and other yield-generating strategies. In a July 22 statement on crypto vaults and lending strategies, Peirce said the legal treatment of those products depends on how much control remains with immutable code and how much is exercised by deployers, curators or other managers.

According to Peirce, a vault may qualify as an investment contract if users contribute assets with an expectation of profits derived from the managerial or entrepreneurial efforts of another party. That analysis reflects the long-running Howey framework used to assess whether an arrangement is an investment contract under federal securities law, regardless of the technology used to deliver it. A structure that holds securities or allocates capital to investments in securities may also come within the scope of the Investment Company Act.

Peirce described several possible structures, including arrangements that resemble unit investment trusts with fixed portfolios, actively managed investment companies and separately managed accounts that provide individualized treatment. Her statement represents her views as an SEC commissioner and does not create a new SEC rule or a binding legal classification.

Lending Terms Raise Additional Legal Questions

Onchain lending products allow users to supply assets to smart contracts that make loans to borrowers in exchange for interest. In some models, managers may choose which assets are supported, adjust interest rates, set loan-to-value ratios and determine liquidation thresholds.

Peirce said those decisions can raise securities-law issues even when the crypto asset deposited or borrowed is not itself a security. She also said some onchain loans may have characteristics of securities notes, depending on the motivations of the parties, the distribution structure and other facts and circumstances.

Operators that select strategies or manage user portfolios may also be subject to investment adviser rules. Peirce said each product requires its own analysis, including its contracts, governance, asset mix, level of managerial control and relationship with depositors. The distinction is important for DeFi products because protocols can combine automated smart-contract execution with human-controlled parameters, offchain risk management or third-party curation.

Her warning comes as exchanges and asset managers continue expanding automated yield products. Kraken’s Bitcoin Vault, for example, deploys customer assets across Aave, Morpho and Tydro through third-party managers and smart-contract infrastructure, illustrating the layered arrangements regulators may assess when determining which entity controls investment decisions.

SEC Seeks Industry Input on DeFi Rules

Peirce said moving an activity onchain does not remove it from securities regulation if the underlying structure already falls within the SEC’s jurisdiction. At the same time, she cautioned that the agency should not extend its authority beyond limits set by Congress or interfere with developers’ free-speech rights.

The comments follow the SEC’s Project Crypto initiative, which is intended to modernize rules for onchain markets and includes proposals related to trading, custody, token distributions, staking and lending. SEC Chair Paul Atkins has also directed staff to examine tailored exemptions for crypto business models that do not fit existing registration frameworks.

Peirce invited vault developers, lending platforms and other market participants to engage with the SEC on compliant structures and to submit proposals for updating rules that unnecessarily block onchain products. The Crypto Task Force continues to accept industry input and has not set a public deadline for submissions related to vaults or lending products.