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U.S. SEC Commissioner Hester Peirce cautioned that crypto vaults and on-chain lending strategies are not automatically exempt from federal securities laws simply because they operate on blockchain networks.
In a statement titled "Headstands and Summervaults: A Statement on Crypto Vaults and Lending Strategies" on July 22, Peirce said developers should avoid trying to reinterpret securities laws to fit decentralized finance products and instead work with regulators when their activities fall within the SEC’s jurisdiction.
Peirce added that the SEC has spent the past 18 months clarifying that many crypto assets and activities are not securities but emphasized that this does not place every blockchain-based product outside the agency’s oversight.
"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 wrote.
She reiterated a principle outlined in an earlier statement that moving financial activity on chain does not change its legal status.
“Tokenized securities are still securities,” Peirce quoted.
SEC Flags Crypto Vaults
Peirce described crypto vaults as smart contract-based systems that allocate users’ digital assets into yield-generating activities such as staking and lending. These vaults, she argues, exist on a broad spectrum.
Some operate entirely through immutable smart contracts with predefined allocation rules, while others rely on individuals or teams to decide where assets should be deployed.
According to Peirce, managers who select investment strategies, rebalance assets or determine who controls those decisions should assess whether their activities trigger federal securities laws.
Depending on their structure, vaults could resemble common investment enterprises, unit investment trusts, management investment companies or separately managed accounts.
A vault that invests in securities or allocates assets into securities-related investments could also fall within investment company regulations, she noted.
Also, Peirce said on-chain lending protocols present similar legal considerations. Managers of vaults and lending platforms could also encounter investment adviser obligations under federal securities laws.
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This article Crypto 'Headstands, Backflips And Other Gymnastics' Won't Escape The Law: SEC originally appeared on Benzinga.com.
