SEC Commissioner Hester Peirce issued a statement on Wednesday warning crypto vault and lending strategy builders against misinterpreting federal securities law. Peirce, a member of the SEC's Crypto Task Force, stated that onchain vaults and lending activities involving investment contracts remain subject to federal regulation regardless of their blockchain deployment. The warning comes amid a boom in tokenization activity during President Donald Trump's second term, as the SEC works to provide clarity for emerging tokenized asset categories.
Peirce Warns Against Securities Law Misinterpretation
In a blog posted Wednesday, Peirce, often called "Crypto Mom" for her support of blockchain innovation, stated people ought not to do "headstands, backflips, and other gymnastics" to read existing securities law so it does not apply to crypto assets within the scope of federal securities laws. "You will have a painful fall," she said. Peirce stated that moving activities within the scope of federal securities laws onchain does not take those activities outside the scope of the laws the Commission administers.
Vaults and Lending Strategies Face Federal Securities Law Scrutiny
Peirce noted that vaults "may implicate the federal securities laws in several ways." She stated vaults may represent a "common enterprise" that acts as one of the prongs of the Howey Test, the SEC's primary guide for determining securities. Vaults may also hold securities or allocate investments into securities such that it "could fall into investment company territory," she added. Peirce noted this may hold true whether vaults are actively or passively managed or resemble separately managed accounts offering individualized client treatment. Several vault makers have begun designing structures that segregate users' funds so assets are not comingled into a single investment vehicle.
Regarding onchain lending, Peirce wrote: "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."
SEC Plans Case-by-Case Evaluation of Crypto Vehicles
Peirce noted the agency will treat these vehicles on an individual basis. "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," she said. Peirce has served as a commissioner under former SEC Chairman Gary Gensler, who pushed the view that almost all crypto-related activity was under the agency's jurisdiction.
Innovation Exemption Delayed as Clarity Act Progresses
The SEC has delayed the release of an innovation exemption that could provide a sandbox for tokenization experimentation. U.S. lawmakers are working toward passing crypto market structure legislation called the Clarity Act, which would codify the SEC's and Commodity Futures Trading Commission's roles in overseeing the crypto industry. Legislation has been delayed in part by ethics concerns regarding Trump's crypto connections, though some progress is being made.
FAQ
What did SEC Commissioner Peirce warn about on Wednesday?
Peirce warned crypto vault and lending strategy builders against misinterpreting federal securities law to exclude their activities from SEC oversight. She stated that moving activities within the scope of federal securities laws onchain does not take those activities outside the scope of the laws the Commission administers.
How might crypto vaults implicate federal securities laws?
Peirce stated vaults may represent a "common enterprise" under the Howey Test, the SEC's primary guide for determining securities. Vaults may also hold securities or allocate investments into securities such that it could fall into investment company territory, whether actively or passively managed.
