SEC's Peirce warns some DeFi vaults, onchain lending may fall under securities laws

The U.S. Securities and Exchange Commission (SEC) has signaled that one of decentralized finance's fast-growing sectors could face greater regulatory scrutiny.

In a statement Wednesday, Commissioner Hester Peirce said crypto vaults and onchain lending strategies may fall under federal securities laws depending on how they are structured and managed.

While many crypto activities lie outside the SEC's jurisdiction, she cautioned that moving them onto blockchain rails does not automatically change their legal status.

“Tokenized securities are still securities,” Peirce said, echoing her earlier remarks. “That principle holds for vaults.”

“If you do headstands, backflips and other gymnastics to read the law so that it does not apply to crypto assets and activities that are well within the scope of the federal securities laws, you will have a painful fall,” she added.

Her comments rippled across the crypto market. $MORPHO$1.9738, one of the largest providers of vault infrastructure, fell roughly 5% following the statement, underperforming the broader crypto market.

Vaults have become one of DeFi's fastest-growing products by allowing users to deposit crypto into smart contracts that automatically allocate capital across lending markets and other yield-generating strategies. Users receive returns while the vault's rules, or in some cases professional managers known as vault curators, determine where funds are deployed.

These vehicles have increasingly expanded beyond DeFi to large exchanges and brokerages like Coinbase and Robinhood as a way to offer users yield on their stablecoin balances. As of July, there were $8.6 billion in assets across 788 curated vaults, reaching 1.4 million, Vaults.fyi told CoinDesk.

Peirce noted that vaults span a wide range of designs, from fully automated smart contracts to products where managers or curators select investment strategies, rebalance assets or appoint others to make those decisions. Those activities could resemble investment companies or investment advisers regulated under existing securities laws, she said.

She offered similar guidance for onchain lending strategies, saying decisions around interest rates, collateral requirements and supported assets could also raise securities law questions depending on the facts and circumstances.

Peirce invited developers to engage with the SEC rather than assuming blockchain technology places them outside the agency's remit.

“These new approaches to the deployment of assets hold great promise,” she wrote. “The promise will only be realized, however, if we grapple now with the intersection between these asset deployment tools and the federal securities laws.”