SEC's Peirce warns DeFi vaults face securities rules as Morpho drops 5%

SEC Commissioner Hester Peirce said some crypto vaults and onchain lending strategies may fall under federal securities laws, warning that moving financial products onto blockchain does not exempt them from existing rules.

"Tokenized securities are still securities," Peirce, a Republican commissioner at the SEC, said in a statement Wednesday. "If you do headstands, backflips and other gymnastics to read the 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."

The statement triggered an immediate market reaction, with Morpho's token falling about 5% to $1.97, underperforming the broader crypto market. Vaults have become one of decentralized finance's fastest-growing sectors, with $8.6 billion in assets across 788 curated products reaching 1.4 million users as of July, according to Vaults.fyi. Major platforms including Coinbase and Robinhood have integrated vault-based yield products for stablecoin holders.

Peirce said vaults with active management or curator selection could resemble investment companies or advisers under existing securities laws, potentially requiring registration or compliance restructuring. She invited developers to engage with the SEC during product development rather than assuming blockchain technology places them outside the agency's remit.

Peirce noted that vaults span a wide range of designs, from fully automated smart contracts to products where managers or curators select investment strategies, rebalance assets or appoint others to make those decisions. Those activities could trigger registration requirements under the Investment Company Act of 1940 or the Investment Advisers Act of 1940, she said. Onchain lending arrangements may also raise similar questions depending on how interest rates, collateral requirements and supported assets are determined.

The commissioner said any regulatory analysis must be based on the specific facts of each case while respecting the limits of the SEC's statutory authority and safeguarding developers' free speech rights. She encouraged industry participants to engage with the agency during product development and said the SEC is open to considering regulatory updates that enable innovation while continuing to protect investors.

The warning comes as the SEC under Chair Paul Atkins has taken a more measured approach to crypto enforcement compared with the previous administration, though Peirce's statement signals that certain DeFi activities remain firmly within the agency's jurisdiction. The $8.6 billion vault market faces potential structural changes if protocols with active curation are required to register as investment advisers, a process that could take months and impose significant compliance costs on protocols and the major exchanges offering their products.

This article is for informational purposes only and does not constitute investment advice.