The DeFi industry is divided over how the U.S. Securities and Exchange Commission (SEC) should regulate yield-generating crypto vaults. On Tuesday, November 3, Aave, Solana-based Kamino, and crypto vault infrastructure firm Veda wrote to the SEC outlining how vaults should be treated.
The trio argued that securities regulation should follow the rights, obligations, and powers an onchain arrangement actually creates, asking: who owns the assets, who promises repayment, and who exercises control?
According to the three protocols, human discretion or active management by a DAO on crypto vaults should not automatically trigger the SEC’s securities laws. They contend that provided users still own assets and can withdraw them at will, such vaults can be deemed non-custodial. For Aave, Kamino, and Veda, most vaults sit outside the current SEC’s security definition.
Vaults as onchain managed funds
Crypto vaults are similar to managed funds such as mutual funds or ETFs, but they operate on-chain and are run by smart contracts. They allow users to employ automated yield strategies to make idle assets productive. Some vaults are managed by risk curators like Steakhouse or Gauntlet, while others are fully run by code.
Morpho-backed framework takes different view
The Morpho-backed Crypto Council for Innovation (CCI) framework suggests that some vaults run by risk curators could be deemed securities because the curators act as managers who select lending markets. It also indicates that even DAO-run protocols may partly be viewed as centralized managers and trigger securities law.
Aave, Kamino, and Veda disagree with parts of that argument. They maintain that DAOs are for “governance, not management.” On vaults managed by risk curators, Aave said: “A curator paid to make investment decisions about securities may be an investment adviser, but it does not have custody, because the code does not let it take the users’ assets.”
The DeFi players agree that some current crypto vaults may be non-securities, but they split on how human intervention by risk curators and DAOs should affect SEC treatment. The SEC recently acknowledged that not all vaults are the same in a guideline, and how it addresses the human intervention question remains to be seen.
Vault AUM grows 61% in H2
Vaults’ traction increased by 61% in the second half of the year, rising from $7 billion to $11 billion in assets under management (AUM), and are expected to grow alongside the tokenization boom, according to the source.
