Crypto Vaults: US Regulatory Considerations

Crypto vaults are drawing regulatory attention, with a recent statement by SEC Commissioner Hester Peirce addressing the application of federal securities laws to these structures.

By Jenny Cieplak, Zachary Fallon, Laura Ferrell, Aaron Gilbride, Yvette D. Valdez, Stephen P. Wink, Adam Bruce Fovent, Haley Hohensee, Daphne Lambadariou, Ivan Pizeta, and Deric Behar

Key Points:

• Crypto vaults exist on a broad spectrum, from fully automated smart contract allocations to discretionarily managed strategies, and their regulatory treatment depends on their specific design and operation.
• The SEC maintains a facts and circumstances approach to determining whether a vault structure falls within the federal securities laws, and emphasizes that moving an activity on-chain does not, by itself, remove it from the SEC’s jurisdiction.
• SEC Commissioner Peirce identified at least four potential points of contact between vaults and the federal securities laws: the investment contract analysis (Howey), the Reves note test for lending arrangements, investment company status under the Investment Company Act, and investment adviser status under the Investment Advisers Act.
• While most of the regulatory focus has come from the SEC rather than the CFTC, practically speaking, vault operators and curators will also need to consider any attendant CFTC regulatory considerations if vault strategies involve derivatives or margined products.