$131 billion crypto vault boom will test the limits of SEC’s friendlier crypto stance

On July 22, SEC Commissioner Hester Peirce warned that some crypto vaults and onchain lending strategies may fall under federal securities laws.

According to her, the regulatory risk depends on how the products are structured and who controls the investment decisions.

Crypto vaults pool customer assets into onchain strategies that generate yield through lending, staking and other activities, with some relying on professional managers to choose markets, approve collateral and set risk parameters.

Peirce did not identify any companies or suggest that existing products violate securities laws. However, her warning comes as several companies, including Bitwise, Coinbase, and Kraken, enter the rapidly expanding market.

How crypto vaults and onchain lending could fall under securities law

The legal risk for these products increases when a vault shifts from automated software to professional managers making decisions over customer assets.

Peirce said vaults can range from immutable smart contracts that follow predetermined rules to actively managed products in which curators choose lending markets, move assets between strategies and adjust risk parameters.

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