Aave, Veda, and Kamino Challenge Human-Control Test for Crypto Vault Securities

Aave Labs, Veda Tech Labs, and Kamino Foundation submitted a legal analysis to the U.S. Securities and Exchange Commission challenging the use of human control and managerial discretion to determine whether crypto vaults are securities. According to ChainCatcher, their filing argues that active management or DAO governance alone does not establish a relationship covered by federal securities laws. The three organizations cite the Howey test and the Investment Company Act, arguing that managers’ investment decisions are not sufficient to make a vault a security or an investment company when users retain rights to their assets and there is no common enterprise or issuer. They say the standard proposed by the Crypto Council for Innovation is too restrictive. The groups agree, however, that paid advice on investments involving securities may still fall under the Investment Advisers Act. Last week, the Crypto Council for Innovation and members Bitwise, Galaxy Digital, and Morpho submitted a 238-page report to the SEC on when vaults should or should not be treated as securities. Its framework focuses on the degree of discretion and control exercised by vault managers, arguing that strategies governed by fixed rules and limited human intervention are less likely to qualify as securities. Aave Chief Legal and Policy Officer Linda Jeng said publicly established market rules and time for users to exit amount to operating a market, not managing other people’s funds. This week, SEC staff updated its crypto asset investment contract FAQ, acknowledging that decentralized governance can involve discretion without necessarily amounting to centralized control. The guidance did not directly address whether crypto vaults are securities. Former SEC Commissioner Hester Peirce had previously sought industry input on whether existing rules should be adjusted to accommodate vaults.