SEC Commissioner: Crypto Custody and Lending Strategies May Trigger Federal Securities Law

BlockBeats News, July 22, U.S. SEC Commissioner Hester Peirce published a statement, stating that although many crypto assets and related activities are not constrained by U.S. federal securities laws, this does not mean that all crypto activities can be excluded from securities regulation. Moving activities that would otherwise be subject to securities laws onto a blockchain typically does not change their legal status.

Peirce pointed out that crypto asset treasuries usually use smart contracts to allocate users' assets to staking, lending, and other yield strategies. If the treasury operator is responsible for selecting yield-generating activities, reallocating assets, or designating decision-makers, their actions may fall under securities laws. Some treasuries may be deemed joint ventures where participants rely on the managerial efforts of others for profits, or may fall under the regulatory purview of investment companies, unit investment trusts, and investment advisers.

On-chain lending strategies may also raise securities law considerations. Managers responsible for setting interest rates, collateralizing assets, loan-to-value ratios, and liquidation thresholds should assess whether their activities are subject to regulation; some on-chain loans may also be considered notes with securities-like characteristics based on transactional motivations, distribution arrangements, and other specific factors.

Peirce stated that the SEC welcomes treasuries and on-chain lending projects to engage with regulatory authorities. If existing rules impede innovation, market participants may also propose changes to strike a balance between protecting investors, maintaining market integrity, and fostering capital formation.