MORPHO dropped 5% after Hester Peirce warned DeFi vaults and onchain lending may fall under securities laws, putting $8.6B in curated vaults at risk.
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The SEC's Hester Peirce told crypto developers Wednesday that some DeFi vaults and onchain lending strategies fall under federal securities laws. The warning sent MORPHO, a vault infrastructure provider, down roughly 5%.
“Tokenized securities are still securities,” Peirce said, echoing past remarks. “That principle holds for vaults.” She added that “if you do headstands, backflips and other gymnastics” to avoid the law, “you will have a painful fall.”
Vaults let users deposit crypto into smart contracts that allocate capital across lending markets and yield strategies. Some rely on curators or managers who pick investments or rebalance assets. Those activities, Peirce said, could resemble investment companies or investment advisers under existing rules.
As of July, $8.6 billion sat in 788 curated vaults reaching 1.4 million users, according to Vaults.fyi. The products have expanded beyond DeFi: Coinbase and Robinhood now offer similar yield on stablecoin balances.
Peirce offered parallel guidance for onchain lending. Decisions around interest rates, collateral requirements and supported assets could also raise securities law questions, depending on the facts, she said.
The commissioner invited developers to engage with the SEC rather than assume blockchain technology places them outside the agency's remit. “These new approaches to the deployment of assets hold great promise,” she wrote. “The promise will only be realized, however, if we grapple now with the intersection between these asset deployment tools and the federal securities laws.”
MORPHO's drop underperformed the broader crypto market. The next test is whether the SEC brings enforcement actions against specific vaults or protocols.
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