SEC Commissioner Hester Peirce warned Tuesday that some crypto vaults and onchain lending strategies could fall under federal securities laws, depending on how they’re structured and who calls the shots. The remarks, delivered July 22, didn’t name any companies or suggest existing products are breaking the law. But they land as the vault market swells — deposits hit about $131 billion in April, up from $24 billion three years ago, per S&P Global Ratings.
The regulatory dividing line
The key question, Peirce said, is whether a vault is purely automated or run by professional managers. A vault that uses an immutable smart contract following preset rules looks different from one where a curator picks yield opportunities, reallocates assets, or sets collateral requirements. Larry Florio, deputy general counsel at Ethena Labs, said that distinction sits at the center of the regulatory question. Legal risk climbs when firms select strategies, move customer funds, or appoint others to do it — that starts to look like a common enterprise with an expectation of profits from managerial efforts.
What vaults look like today
Major players are piling in. Bitwise launched its first onchain vault through Morpho in January, with its investment team setting collateral limits and allocation rules while customer assets stay onchain. Coinbase expanded USDC lending through Morpho this year, letting eligible users deposit the stablecoin into vaults curated by Steakhouse Financial. Kraken entered in May with a Bitcoin vault that allocates across Aave and Morpho, offering variable returns up to 2.5% paid in Bitcoin; Veda provides the infrastructure and Sentora handles strategy design and risk. About 94% of vault deposits remain in crypto-native activities like staking and crypto-backed lending, but professionally managed products are growing fast. Bitwise expects assets in that category to double this year and has called the products potential “ETFs 2.0.”
Securities law angles
Peirce outlined several ways vaults could trigger securities laws. A vault that owns securities or directs funds into them could fall under investment-company rules. A fixed portfolio might resemble a unit investment trust; a strategy that regularly reallocates could look like a managed investment company. Products offering individualized treatment could share traits with separately managed accounts, raising investment-adviser questions. Onchain lending introduces another path: even if the borrowed assets aren’t securities, managers setting interest rates, eligible collateral, loan-to-value ratios, or liquidation thresholds could bring the loans under scrutiny. Loans themselves could be examined as notes under the Reves v. Ernst & Young framework, depending on structure, distribution, and use. None of this automatically makes a vault or lending strategy subject to securities laws — the outcome depends on product structure, underlying assets, and degree of discretion.
What’s next
Peirce didn’t signal any imminent enforcement. The industry is left to parse the principles and watch for further guidance. With vault deposits up more than fivefold in three years and major exchanges rolling out new products, the question of where the SEC draws the line isn’t going away. Bitwise’s prediction that professionally managed vaults will double this year only sharpens the stakes.
