Crypto Vaults May Be Securities, Warns SEC's Hester Peirce

SEC Commissioner Hester Peirce has warned that crypto vaults and onchain lending products may be subject to securities regulations, depending on how they operate. In a recent statement, Peirce emphasized that it is not the technology used to deliver these products that matters, but rather who makes the decisions and what users expect from those decisions.

Peirce explained that crypto vaults allow users to deposit assets into smart contracts that direct funds toward yield-generating activities such as staking and lending. However, she noted that the structures of these products differ considerably, ranging from programmatic allocations determined entirely by immutable smart contracts to products where another person or group has discretion over where the assets go.

The SEC would not consider just one question in determining whether a crypto vault is subject to securities regulations. Instead, they would examine several separate legal questions that could apply to the same product, including whether users rely on someone else to generate their returns, whether the vault pools assets and invests them in securities, and whether someone is compensated for managing or advising on securities investments.