DeFi Vault Regulation Splits Major Lending Protocols Over SEC Oversight
Key Summary
DeFi protocol operators filed opposing regulatory frameworks with the U.S. Securities and Exchange Commission on Tuesday regarding the legal status of yield-generating vaults. Aave, Solana-based Kamino, and Veda argued that human curation and DAO governance do not transform non-custodial smart contracts into regulated securities, provided depositors retain full withdrawal control. This position directly challenges separate submissions from Morpho and the Crypto Council for Innovation, which concede that active risk managers could trigger securities and investment adviser classifications.
Key Bullets
- Aave, Kamino, and Veda submitted joint regulatory filings to the SEC arguing that active DAO governance and human curation do not trigger federal securities laws for on-chain vaults.
- Total value locked across yield vaults expanded by 61% during the second half of the year, surging from $7.00B to $11.00B in total assets under management.
- Morpho and the Crypto Council for Innovation countered that risk curators selecting specific lending pools act functionally like investment managers of traditional mutual funds.
- Filings show protocol developers remain divided over whether non-custodial smart contracts operating with external risk curators cross the threshold into regulated financial products.
Protocols Clash Over Vault Oversight Rules
Aave, Solana-based Kamino, and infrastructure firm Veda submitted official correspondence to the U.S. Securities and Exchange Commission on Tuesday to establish boundaries for yield-generating vaults. According to public regulatory dockets, the coalition argued that securities laws must evaluate underlying asset ownership and user withdrawal rights rather than superficial software mechanics. Active asset management by decentralized autonomous organizations or risk curators should not automatically classify vaults as investment vehicles, the groups stated. TVL across these automated yield structures climbed 61.0% in the second half of the year, expanding from $7.00B to $11.00B in total assets under management.
That filing diverges sharply from alternative frameworks submitted by Morpho and the Crypto Council for Innovation. Order-book monitoring and policy papers indicate that Morpho aligns with a broader institutional view that external risk managers resemble traditional mutual fund operators. Curators selecting specific lending markets exert managerial discretion, which could trigger federal oversight. Protocols are deeply split on regulatory definitions.
Dispute Centers on Human Curation Control
The core disagreement rests on how human intervention affects smart contract custody. Aave representatives maintained in regulatory filings that third-party risk curators compensated for asset allocation decisions do not hold custody of user funds. Smart contract code prevents curators from seizing collateral directly. Users retain full authority to withdraw deposits on demand. The separation between advisory selection and absolute asset custody forms the cornerstone of the Aave, Kamino, and Veda defense.
Conversely, the Morpho-backed framework views DAO-driven protocol governance as centralized management. Risk curators acting as intermediaries introduce structural oversight that mirrors traditional collective investment schemes. The SEC acknowledged in recent administrative guidance that vault architectures vary significantly across platforms. Federal regulators have yet to clarify how active curation impacts the legal status of non-custodial yield products.
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