The Securities and Exchange Commission (SEC), Crypto Task Force lead, Commissioner Hester Peirce, has issued a statement on “crypto vaults and lending strategies.” In brief, the Commissioner addresses the varying and changing strategies crypto holders utilize to generate yield.
Expanding on a prior statement that tokenized securities remain securities, Commissioner Peirce explains that these yield strategies likely implicate federal securities laws.
The Commissioner states:
“A vault, for example, could be a common enterprise in which users invest money with a reasonable expectation of profits to be derived from the vault deployer’s and curator’s entrepreneurial or managerial efforts. A vault that holds securities or allocates assets to investments in securities could fall into investment company territory. Some vaults may function similarly to unit investment trusts that hold a fixed portfolio of assets with little or no active management; others may function similarly to management investment companies; and still others may more closely resemble separately managed accounts that offer individualized client treatment. Lending strategies also can carry significant federal securities law implications that do not turn on the assets involved. For example, onchain loans, depending on the parties’ motivations, the plan of distribution, and other relevant factors, can bear the hallmarks of notes that are securities. Involvement in managing vaults and lending strategies also may implicate investment adviser issues. Whether a particular vault or lending strategy’s structure and activities are within the scope of the federal securities laws will come down to the specific facts and circumstances. Any SEC analysis of these issues requires respect for the limits Congress set on our jurisdiction and an unwavering commitment to protecting developers’ free speech rights.”
While acknowledging the benefits of digital asset innovation, the statement holds an element of frustration as innovators seek to push the boundaries of what is a security and when. The statement also highlights the challenges of updating rules to address the digital asset ecosystem.
Commissioner Peirce asks for feedback from industry participants while stating, once again, that accommodating innovation typically is paired with investor protections (when it falls under security law).
