SEC’s Crypto Mom has a warning for DeFi builders

SEC Crypto Task Force member Hester Peirce warned that onchain lending and vaults are subject to securities laws. In a Wednesday blog, she insisted that builders should focus on the function and design of their tools, rather than on how their tech shields them from the law.

She urged them to quit twisting and bending established laws just to carve out a special exception for their crypto activities. “You will have a painful fall,” she cautioned.

Peirce’s comments come as the SEC is re-imagining its approach to digital asset regulation. Last March, the agency issued guidance on the federal securities laws for protocol staking, airdrops, protocol mining, and wrapped crypto assets. The guidance also laid out a new taxonomy between digital securities and crypto assets that may not be securities.

Although the SEC has adopted a more collaborative tone toward the crypto industry under its current leadership, Peirce said compliance expectations remain intact on products that carry out regulated financial functions.

Her latest comments also reinforce a position she has maintained in previous speeches: that blockchain innovation should not be confused with regulatory immunity.

Peirce says she recognizes the differences in vaults and lending platforms

The warning is particularly relevant for decentralized finance (DeFi) developers building yield-generating vaults, lending markets, and other automated investment products.

While many DeFi protocols rely on smart contracts instead of traditional intermediaries, Peirce indicated that regulators will focus on the economic substance of a product rather than its decentralized architecture.

Pierce advised developers that if their activities involve securities, they need to work with the commission to remain compliant. Ideally, her comments build on earlier remarks about tokenized securities.

Back then, she noted that the assets were still securities regardless of whether they are issued or traded on blockchain networks. These are broader attempts to introduce some sort of order to the crypto environment.

Those statements showed that the SEC’s jurisdiction is not diminished by the fact that securities trade on conventional systems or on blockchain technology. Similarly, that logic applies to crypto vaults, where users earn interest on tokens. Vault governance however, ranges from full automation to full human management. As Pierce pointed out, such differentiations are important because managing the underlying asset or delegating investment powers might make the securities in question subject to SEC regulation.

She remarked, “For example, onchain loans, depending on the parties’ motivations, the plan of distribution, and other relevant factors, can bear the hallmarks of notes that are securities. Involvement in managing vaults and lending strategies also may implicate investment adviser issues.”

However, she added that this is not a case of ‘one size fits all’; rather, the SEC will evaluate each crypto asset on its own merits in order to determine the applicability of the law. She also urged developers to consult the commission on the limits of regulation and to suggest modernizing existing rules.

She’s still planning her departure from the SEC in November, this time to join academia at Regent University School of Law; she has been leading the Commission’s Crypto Task Force since January 2025.

The SEC and the legislature are working on introducing more regulations

On the other hand, the SEC is currently reviewing tokenization. Recent calls from Wall Street transfer agents have asked them to pay attention to the tokens issued by the companies themselves, since third-party tokens do not guarantee any shareholders’ rights.

At the same time, the CLARITY Act is under consideration by Congress to clarify regulatory jurisdiction for both the SEC and the CFTC, lending even more fuel to the ongoing discussion about U.S. regulation of cryptocurrencies.

Ultimately, Peirce’s position does leave the door open for non-regulated vaults and loaning mechanisms, but leaves no doubt that blockchain technology does not equal securities compliance.