The U.S. Securities and Exchange Commission (SEC) has cautioned that crypto vaults and onchain lending strategies may actually fall under federal securities laws.
These are some of the industry's fastest-growing yield-generating products, and they could face regulatory scrutiny depending on their specific structure.
SEC Commissioner Hester Peirce, who penned the recent piece, said that the fact that many crypto assets and activities do not fall within the agency's jurisdiction does not actually exempt all decentralized finance (DeFi) products from existing regulations.
Vault design importance
Crypto vaults have gained significant popularity as tools that make it possible for users to earn yield on digital assets via activities such as staking and lending.
According to Peirce, these vaults vary substantially in design, which is why they should not be painted with a broad brush. Some involve active management by individuals or teams who determine how funds are deployed.
The "Crypto Mom," who is leaving the SEC this year, says that participants should assess whether their activities fall within the scope of federal securities laws.
She has stressed that simply moving investment activities onto blockchain networks does not remove them from existing securities regulations.
"Moving activities that fall within the scope of the federal securities laws onchain, as a general matter, does not take those activities outside the scope of the laws the Commission administers," she wrote.
Lending protocols are also under review
The statement also addressed crypto lending strategies where users deposit digital assets into onchain protocols that lend them to borrowers in exchange for fees.
Peirce noted that parties responsible for setting interest rates, choosing supported assets, and so on should likewise evaluate whether their roles trigger securities law obligations.
She added that certain onchain loans could resemble securities. This depends on various factors such as how they are distributed and the motivations of participants.
Dan Burgin
U.Today Editorial Team
