US SEC Commissioner: Crypto custody and lending strategies may violate federal securities laws.

U.S. SEC Commissioner Hester Peirce issued a statement noting that while many crypto assets and related activities are not subject to U.S. federal securities laws, this does not mean all crypto activities can be exempt from securities regulatory oversight. Shifting activities originally under the jurisdiction of securities laws onto the blockchain typically does not alter their legal nature. Peirce pointed out that crypto asset vaults usually use smart contracts to allocate user funds to yield strategies such as staking and lending. If a vault operator is responsible for selecting yield activities, reallocating assets, or designating decision-makers, their actions may implicate securities laws. Some vaults could be classified as common enterprises that rely on the operator’s efforts to generate profits, or fall under the regulatory purview of investment companies, unit investment trusts, and investment advisors. On-chain lending strategies may also run afoul of securities laws. Operators responsible for setting interest rates, supporting assets, loan-to-value (LTV) ratios, and liquidation thresholds should assess whether their activities are regulated; some on-chain loans may also be deemed securities-like notes based on specific factors such as transaction motives and distribution arrangements. Peirce added that the SEC welcomes vault and on-chain lending project teams to communicate with regulators. If existing rules hinder innovation, market participants can also propose amendments to strike a balance between protecting investors, maintaining market order, and facilitating capital formation.