SEC Commissioner Hester Peirce published a statement earlier this week suggesting crypto vaults and onchain lending strategies may already fall within federal securities laws. Peirce stated that moving an activity onchain does not generally exempt it from those laws, warning that attempts to avoid regulatory scope will result in "a painful fall." The statement addresses a fast-growing market where curated vaults currently hold about $8.75 billion across 811 live products run by 110 firms on 18 protocols, according to data provider vaults.fyi, amid ongoing regulatory uncertainty about whether vaults constitute funds and whether curators function as asset managers.
Peirce Outlines Multiple Potential Legal Applications for Crypto Vaults
Peirce set out several ways the laws could apply. A vault could be a common enterprise in which users invest money expecting profits from the efforts of its deployer and curator. A vault that holds securities, or allocates assets to securities, could fall under investment company laws. Depending on how it operates, a vault could resemble a unit investment trust, a management investment company, or a separately managed account, which all require different levels of SEC registration. Onchain loans could also be notes that are securities, while managing vaults or lending strategies may raise investment adviser issues.
Peirce stated whether any of these laws apply "will come down to the specific facts and circumstances." She invited firms to come and talk. The statement is not a rule or an enforcement action, and Peirce spoke only for herself, not the Commission.
SEC Chair Atkins Called for Clarity on Crypto Vaults in May
The statement marked the second time in three months that SEC leadership had publicly addressed vaults. In May, SEC Chair Paul Atkins said the Commission "should consider ways to provide clarity surrounding what are commonly referred to as 'crypto vaults,' particularly regarding Securities Act and Advisers Act touch-points." He said that clarity should come through notice-and-comment rulemaking and the SEC's exemptive authorities, noting that onchain market structures are "hybrid in nature," combining elements of traditional and decentralized finance.
Curated Vault Market Holds $8.75 Billion Across 811 Products
Curated vaults currently hold about $8.75 billion across 811 live products run by 110 firms on 18 protocols, according to vaults.fyi. That is roughly 12% of the deposits it tracks. Ryan Rodenbaugh, co-founder and CEO of vaults.fyi, defined a curated vault as one where a named entity's decisions determine what depositors are exposed to.
Within the curated market, lending vaults account for $5.8 billion across 617 products. In these vaults, a curator selects markets and sets limits, while code enforces where funds can go. Strategy vaults, where a manager actively runs the capital, hold $3 billion across 194 products. A smaller category, counterparty credit, where deposits lend directly to a named firm, holds $182 million.
Lending vaults tracked by vaults.fyi currently earn an average return of about 3.7%, compared with about 7.7% for strategy vaults. Much of the higher return comes from real-world asset and private credit strategies. Rodenbaugh said the premium is compensation for manager discretion, which is the same property the regulatory conversation is about.
The market is also highly concentrated. The five largest curators hold 70% of curated value, while the 25 largest stablecoin vaults on Morpho allocate half their combined capital to just three underlying markets, Rodenbaugh said.
S&P Global Ratings Reported Total Vault Deposits Reached $131 Billion
Using a broader definition, S&P Global Ratings said in May that total vault deposits had reached about $131 billion as of April, up from roughly $24 billion three years earlier. It noted that 94% of current activity remains concentrated in crypto-native strategies such as staking and crypto-backed lending.
Industry Divided on Whether Vaults Constitute Unregistered Funds
James Harris, CEO of Tesseract Group, a European crypto asset manager, stated: "Since the beginning of the year we have been clear about vaults: this is asset management, it is a regulated activity, and you cannot get away from that." Pooled structures at this scale "very much look like collective investment schemes," Harris said.
Andy Martinez, founder and CEO of Crypto Insights Group, said the argument that "many vaults function as unregistered funds deserves to be taken seriously." He said where a curator exercises discretion over assets that are securities and depositors expect profits from that judgment, "the relationship looks a lot like advisory activity under existing law." Martinez said "very few" curators of any size are registered advisers today, and he expects that to look very different within a year.
Lucas Kozinski, co-founder of liquid restaking protocol Renzo, wrote on X that "the only thing anyone should be surprised about is that companies have been running unregistered hedge funds for this long."
Curators and Protocols Reject Broad Characterization as Unregistered Funds
Gauntlet was the most direct in its rejection. "Broad statements of that kind can't be anything other than misinformed and broadly incorrect," said Nicholas Cannon, chief business officer at Gauntlet, one of the largest vault curators. Every vault, vault platform and curator operates differently, he said. Asked where Gauntlet's work falls on Peirce's spectrum, Cannon placed it "much closer to programmatic vault curation that is non-discretionary in nature."
Christopher Robins, general counsel at Morpho, whose lending protocol and vault infrastructure support much of the curated market, said the framing "collapses several distinct functions into one, and it skips the analysis Commissioner Peirce herself says is required." Morpho vaults are non-custodial, he said. Curators never take possession of user assets, depositors can typically withdraw at any time, and allocations can be verified onchain in real time within limits enforced by the contract, Robins added.
Rob Hadick, general partner at crypto venture firm Dragonfly, said the analysis also depends on what is being deposited. Vaults are "simply a technology that uses smart contracts to autonomously transact based on a set of criteria," he said. In most cases, the assets being deposited, such as stablecoins, bitcoin and ether, are explicitly not securities, Hadick said.
Europe's MiCA Framework Already Regulates Discretionary Crypto Asset Management
Harris said Europe drew the line first. Under the Markets in Crypto-Assets (MiCA) legal framework, discretionary management of crypto assets is regulated, regardless of who runs it or where the code sits, Harris noted. He said Tesseract is authorized for European portfolio management under MiCA. In April, it launched what it calls "dedicated client vaults," with one client, one vault and one segregated mandate.
Discretion Level Determines Regulatory Classification Under Proposed Framework
Across the interviews, one variable mattered most: discretion. Harris, however, cautioned against assuming that a passive vault automatically sits outside regulation. Peirce said a vault holding a fixed portfolio with little active management could resemble a unit investment trust, which is still an investment company. "Being passive changes which regime you are in rather than getting you out of one," Harris said.
Alison Mangiero, chief strategy officer and head of U.S. policy at the Crypto Council for Innovation, said discretion is precisely why one label cannot cover the entire market. The relevant questions are what function is being performed, who is exercising discretion, what rights and obligations exist, and how the technology operates, she said. The answers differ across vaults, so treating every vault as an investment company or every curator as an investment adviser could "risk oversimplifying what is actually a very diverse landscape."
Industry Calls for Activity-Based Regulation Rather Than Technology-Focused Rules
The Crypto Council for Innovation's Vault Coalition is developing a common framework that separates the different participants in the ecosystem, including infrastructure providers, protocol developers, curators, interfaces, support services and end users. The goal is to help regulators distinguish between technical infrastructure and investment or asset management activities. Mangiero said the guiding principle is that regulators should focus on activities, not infrastructure, while applying existing laws in a technology-neutral way.
Most operators agreed on two broad points. First, they said infrastructure providers that publish and maintain non-custodial software should not be treated as regulated financial firms. Second, they said the main regulatory focus should be on discretionary curators, because they make the investment decisions.
Morpho's Robins said that if a vault does fall under securities laws, there should be "a workable path to compliance rather than a registration regime designed for a different era."
Richard Galvin, executive chairman and chief investment officer at Digital Asset Capital Management, which invests in vaults, proposed licensing requirements for both curators and platform operators. He said those licenses could also clarify disclosure and anti-money laundering obligations.
Johanna Collins-Wood, general counsel at Bitwise, said: "A sensible outcome would be tailored rules that give the industry clear guidance and reflect how these products actually function. What would concern us is an approach that forces genuinely new arrangements into legacy categories that do not fit, or that merely adds to the industry's uncertainty."
FAQ
What did SEC Commissioner Hester Peirce say about crypto vaults?
SEC Commissioner Hester Peirce published a statement earlier this week suggesting crypto vaults and onchain lending strategies may already fall within federal securities laws. She stated that moving an activity onchain does not generally exempt it from those laws and warned that attempts to avoid regulatory scope will result in "a painful fall." Peirce outlined several ways the laws could apply, including vaults potentially being common enterprises, investment companies, or raising investment adviser issues, depending on specific facts and circumstances.
How large is the curated crypto vault market?
Curated vaults currently hold about $8.75 billion across 811 live products run by 110 firms on 18 protocols, according to vaults.fyi. Within this market, lending vaults account for $5.8 billion across 617 products, while strategy vaults hold $3 billion across 194 products. Using a broader definition, S&P Global Ratings said in May that total vault deposits had reached about $131 billion as of April, up from roughly $24 billion three years earlier.
What determines whether a crypto vault falls under securities regulation?
According to industry sources interviewed, discretion is the key variable. Where a curator exercises discretion over assets that are securities and depositors expect profits from that judgment, the relationship resembles advisory activity under existing law. However, even passive vaults may fall under regulation as investment companies such as unit investment trusts. SEC Commissioner Peirce stated that whether any securities laws apply "will come down to the specific facts and circumstances" of each vault's operation.
