'You will have a painful fall': SEC's Peirce warns crypto vault builders against twisting securities law

Hester Peirce, a leading member of the U.S. Securities and Exchange Commission's Crypto Task Force, has issued a statement of clarity arguing that onchain vaults and lending strategies that involve investment contracts — in other words, securities — remain subject to federal regulation.

In a colorfully written blog on Wednesday, Peirce, who is often called "Crypto Mom" for her longstanding support of blockchain financial innovation, said people ought not to do "headstands, backflips, and other gymnastics to read [existing securities] 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 said.

Peirce’s comments come after she made proactive statements on the broader category of tokenized securities, arguing then that tokenized securities remain securities. The agency itself has been working to provide clarity for the emerging category of tokenized assets.

During President Donald Trump’s second term, there has been a boom in tokenization activity, including the construction of onchain vaults that are designed to earn yield for participants by deploying capital in various onchain investment strategies.

"Moving activities that fall within the scope of the federal securities laws onchain, as a general matter, does not take those activities outside the scope of the laws the Commission administers," Peirce said on Wednesday.

Peirce noted that vaults “may implicate the federal securities laws in several ways.” Namely by representing a “common enterprise” that acts as one of the prongs of the Howey Test, the SEC’s primary guide for determining securities. Vaults, she added, may also hold securities or allocate investments into securities such that it “could fall into investment company territory.”

She noted that this may hold true whether vaults are actively or passively managed or resemble separately managed accounts that offer individualized client treatment. Several vault makers and managers have begun designing structures that can segregate users’ funds, so that the assets are not comingled into a single investment vehicle.

Similarly, onchain lending may also fall under the SEC’s remit. “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,” Peirce wrote.

Peirce noted that the agency will be treating these vehicles on an individual basis, essentially saying that her statements today are not a blanket ban on onchain vault or lending activities. Peirce has also 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.

“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.

The SEC has delayed the release of an innovation exemption that could provide a sandbox for tokenization experimentation.

U.S. lawmakers are also working toward passing broad 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 The Block has reported some progress is being made.