SEC’s New Crypto Custody Proposal Leaves DeFi Vaults In Limbo, Bitwise Counsel Says

Bitwise General Counsel Johanna Collins-Wood said vaults running on smart contracts fell outside a rule written around wallets and addresses.

• Bitwise's general counsel welcomed the SEC's custody proposal on Friday, but said DeFi questions were not resolved.
• Managers could hold assets themselves where no qualified custodian would take them.
• The Securities and Exchange Commission was taking comments for 60 days after the proposal reached the Federal Register.

Bitwise General Counsel Johanna Collins-Wood said that the Securities and Exchange Commission's (SEC) new crypto custody proposal solved problems asset managers have faced for years, but that "important questions about DeFi still remain[ed]."

Collins-Wood explained her reading of the custody counsel on X on Friday, saying that the framework "thoughtfully addresses problems crypto asset managers have faced since 2017". She added that it was encouraging to see the SEC working through the issues with the industry, while voicing her approval of the path to holding assets directly.

"For years we have dealt with the issue of wanting exposure to a new token that no qualified custodian would hold," Collins-Wood said.

The proposed Rule 223-1(b)(7) would allow self-custody in that situation, subject to controls, reporting, and other safeguards, with managers required to move the asset once a qualified custodian becomes available.