Crypto Industry Proposes Tiered Regulation for On-Chain Vaults in Detailed SEC Submission
The crypto sector has taken a proactive step in shaping its regulatory future. A coalition led by the Crypto Council for Innovation, alongside several prominent industry participants, delivered a comprehensive 238-page report to the U.S. Securities and Exchange Commission. The document presents a detailed framework for regulating on-chain vaults, a popular but legally ambiguous type of DeFi product.
The Core Principle: Risk-Based Tiers Defined by Operator Control
The report's foundational argument is that the level of control an operator exerts over user assets and investment decisions should dictate the regulatory obligations. This creates a clear distinction between different vault structures.
- Automated Strategy Vaults: For products that execute lending or yield strategies automatically via immutable, pre-set smart contract code, the operator's role is framed more as a technical maintainer than an investment advisor.
- Discretionary Vaults: Products allowing operators to actively select assets, adjust terms, or reallocate funds grant significant investment discretion. The report states that greater control should correlate with a higher likelihood of being subject to existing securities regulations.
A Practical Pathway: Exemptions and a Phased Approach
For vault operators that might qualify as "investment companies," the report suggests a pragmatic, phased strategy rather than an outright ban. It recommends the SEC follow a path similar to its historical approach to exchange-traded funds.
This would involve the SEC granting case-by-case exemptive relief to qualifying projects, allowing them to operate under specific conditions. This initial phase would enable regulators to gather market data and experience, informing the later development of clear, unified rules for the sector. The goal is to balance innovation, investor protection, and regulatory clarity.
Broader Implications: A Blueprint for DeFi Compliance
The submission marks a shift from reactive compliance to active engagement in rulemaking. Beyond mere recommendations, the report provides regulators with a thorough technical and legal analysis for handling delegated asset management in decentralized finance. Its "control-based grading" concept is likely to become a key reference point in global discussions on regulating on-chain financial instruments.