Hester Peirce Warns Crypto Asset Custodians and On-Chain Lenders—Indicates Application of Securities Law and Enhanced Oversight

Hester Peirce, a commissioner of the SEC (U.S. Securities and Exchange Commission), has expressed the view that existing federal securities laws are likely to apply to on-chain custodians (vaults) of crypto assets and decentralized lending services.

She emphasized that just because these services operate on a blockchain does not mean they are exempt from traditional regulatory frameworks. According to data aggregation site Vaults.fyi, as of July 2026, approximately $8.6 billion (about 1.4 trillion yen) is deposited in 788 vaults, and this statement is expected to significantly impact the rapidly growing decentralized finance (DeFi) market.

Governance and Management Structures Affecting Securities Status

Commissioner Peirce cited traditional criteria such as the Howey Test, indicating that the mechanism of pooling funds for a common enterprise could meet the requirements for securities.

In particular, protocols with the following elements are more likely to fall under the regulation of investment companies and investment advice:

Active Management: Specialized curators or managers lead asset rebalancing and strategy changes.
Portfolio Structure: Even if individual accounts are separated, the actual decision-making in management could bring them under regulation.
Specific Interest and Collateral Structures: The interest rates and liquidation conditions in lending protocols may be considered equivalent to bonds (securities) in legal nature.

Even fully automated smart contracts may face stricter legal scrutiny if human intervention or decision-making processes are present.

Market Trends and Future Outlook

Peirce's remarks do not immediately impose a blanket ban on on-chain custody or lending but indicate a policy of assessing based on specific business models. She encouraged developers to engage in dialogue with the SEC from the early stages before independently determining that they are outside regulatory scope.

Following the announcement, the native token of major vault infrastructure provider Morpho dropped, indicating immediate market reaction. Meanwhile, the deliberation of the CLARITY Act, which aims to clarify supervisory authority over crypto assets, has stalled due to political factors. Operators are being compelled to adhere to high compliance standards based on current legal criteria until clear legal frameworks are established.

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