Peirce Targets DeFi Vaults: 'Headstands and Backflips' Won't Save You

SEC Commissioner Hester Peirce, known for her industry-friendly stance and nicknamed 'Crypto Mom,' has published an official statement warning that decentralized finance (DeFi) vaults may be considered securities. In her statement, titled 'Headstands and Backflips,' she criticizes crypto entrepreneurs for attempting to disguise the management of other people's money as 'smart' blockchain technology.

Peirce argues that regulators will look beyond terminology and examine the underlying economic substance of DeFi projects. She notes that when a smart contract pools users' money and allocates it to generate profit, it enters a legal gray area. If people begin making decisions in this process, such as changing interest rates or choosing where capital should be allocated, the project may become a securities issuer or an investment company.

The Commissioner warns that creators of individual vaults on platforms like Hyperliquid could also fall into the same trap. When a trader launches a public vault and other users deposit funds to copy their derivatives trades, it may amount to the activity of an unregistered investment adviser.