Aave, CCI Split on Whether Non-Custodial Crypto Vaults Are Securities
TREE NEWS reports: Two competing legal frameworks submitted to the U.S. Securities and Exchange Commission (SEC) reveal a deepening divide over whether non-custodial crypto vaults fall under federal securities law. Aave Labs, Kamino Foundation, and Veda Tech Labs argued in a recent report that, under the specific architectures they analyzed, vaults do not necessarily constitute common investment schemes or investment companies—even when a manager actively selects strategies. In contrast, the Crypto Council for Innovation (CCI), alongside members including Bitwise, Galaxy, and Morpho, proposed a framework that emphasizes the degree of human control over investment decisions and assets.
The Core Disagreement
The split centers on how to interpret the classic Howey test and the Investment Company Act in the context of decentralized finance. Aave and its co-authors contend that non-custodial vaults—where users retain control of their assets and the protocol operates via smart contracts—should not automatically be treated as securities offerings simply because a manager makes strategic choices. They argue that the absence of a common enterprise and reliance on managerial efforts may distinguish these structures from traditional investment contracts.
CCI, however, takes a more granular approach. Its framework focuses on the actual control exercised by individuals over investment decisions and asset custody. Where a manager has significant discretion and users are passive, the argument goes, securities law may apply. This view aligns with the SEC’s historical emphasis on economic reality over form.
Implications for DeFi
The outcome of this debate could reshape the legal landscape for decentralized finance. If Aave’s view prevails, many vault products could operate outside the securities regime, potentially lowering compliance costs and fostering innovation. If CCI’s control-based test gains traction, vault managers may need to register as investment advisers or restructure their offerings.
Both submissions acknowledge that vault managers providing paid investment advice may still be subject to the Investment Advisers Act. They also stress that their conclusions are design-dependent and do not represent SEC regulatory positions. This caveat underscores the uncertainty facing the sector.
Forward-Looking Perspective
As the SEC continues to grapple with crypto regulation, the industry’s divergent views may delay clear guidance. However, the submissions signal a maturing dialogue: rather than blanket exemptions, stakeholders are proposing nuanced, facts-and-circumstances tests. The coming months could see increased SEC scrutiny of vault structures, with enforcement actions likely to target cases where managerial control is most pronounced. For now, DeFi projects should prepare for a regulatory environment that rewards transparency and minimizes centralized discretion.
