Three of the largest decentralized lending operations — Aave Labs, Kamino Foundation, and Veda Tech Labs — submitted a joint legal framework to the SEC on October 26 arguing that on-chain lending and non-custodial vaults do not constitute securities arrangements under federal law. The public summ...
"Some companies have been doing headstands, backflips, and other gymnastics to argue their crypto products fall outside SEC oversight." — Hester Peirce, SEC Commissioner, July 2026
Three of the largest decentralized lending operations — Aave Labs, Kamino Foundation, and Veda Tech Labs — submitted a joint legal framework to the SEC on October 26 arguing that on-chain lending and non-custodial vaults do not constitute securities arrangements under federal law. The public summary, released November 2, marks the first coordinated industry attempt to establish formal regulatory clarity for a $50 billion-plus DeFi lending sector that has operated in legal ambiguity since inception.
The filing is directed at the SEC's Crypto Task Force and Division of Corporation Finance. It does not request exemptions, safe harbors, or new rulemaking. Instead, the three parties argue that existing securities statutes — properly applied — already exclude the core mechanics of decentralized lending from registration requirements. A meeting with SEC staff has been requested; no date has been confirmed.
The submission lands three months after Commissioner Hester Peirce warned in a July 22 statement titled "Headstands and Summervaults" that crypto vaults and on-chain lending "may trigger federal securities-law obligations," signaling that the SEC has not foreclosed enforcement in this area despite winding down other crypto investigations.
On October 26, 2026, Aave Labs, the Kamino Foundation, and Veda Tech Labs Inc. submitted a confidential legal framework to the SEC's Crypto Task Force and Division of Corporation Finance. A public summary was released on November 2.
The document evaluates two specific product categories:
The submission analyzes both product types against four regulatory pillars: the Howey test for investment contracts, the Reves test for debt-like instruments, the Investment Company Act of 1940, and the Investment Advisers Act.
The filing explicitly states that the parties are "not seeking a regulatory exemption or a temporary safe harbor framework." They are asking the SEC to confirm that existing law already distinguishes between issuance, investment management, custody, and the kinds of automated market-making that define DeFi lending.
The core thesis is built on five claims:
No promise, no security. The filing argues that securities laws regulate promises between parties. When a user supplies assets to a lending protocol, "a user makes its own assets available to a market and keeps control of its position throughout." No issuer makes repayment guarantees. No entity pools investor capital for a common enterprise.
Common enterprise fails. Citing Aguilar v. Baton Corp., the submission contends that suppliers' returns are independent — they share infrastructure, not profits. According to the filing, "interacting over shared computer code does not constitute a joint investment enterprise."
Governance is administration, not management. DAO governance sets market parameters — interest rate curves, collateral factors, liquidation thresholds — but does not exercise discretion over deposited capital. The filing states: "If governance stopped acting tomorrow, the markets would keep running under the then existing rules." Parameters execute through mandatory timelocks, allowing users to withdraw before changes take effect.
Non-custodial vaults are not investment companies. Users retain ownership throughout. However, the filing makes a notable concession: if vault curators make discretionary decisions regarding assets that are themselves classified as securities, this "could fall under the definition of an investment adviser." This acknowledgment creates a boundary line — purely algorithmic vaults on one side, curator-managed vaults investing in tokenized securities on the other.
The transaction, not the token. The framework insists regulators should evaluate the economic substance of each transaction rather than applying blanket classification to protocol tokens or receipt tokens. Identical positions should not receive different treatment based on the wrapper.
The submission represents protocols operating across three distinct blockchain ecosystems with different architectures and market segments.
Aave (Ethereum-primary, multi-chain): The largest decentralized lending protocol by total value locked. As of November 4, 2026, Aave holds $16.3 billion in TVL across V3 ($15.4B) and V4 ($786M), according to DefiLlama. It commands 32.3% market share among 514 tracked lending protocols and carries $11.8 billion in active loans. The SEC conducted a four-year investigation into Aave beginning around 2021; it closed in December 2025 without enforcement action.
Kamino (Solana): Ranked #8 among lending protocols with $1.24 billion in TVL and $836 million in active loans as of November 4. Recently overtaken by Jupiter Lend as Solana's largest lending protocol by TVL, though Kamino leads on 30-day fee generation, according to CryptoBriefing.
Veda (multi-chain vault infrastructure): Ranked #2 among on-chain capital allocator protocols on DefiLlama. TVL is distributed across Ink ($885M), Ethereum ($621M), OP Mainnet ($216M), Monad ($42M), and Hyperliquid L1 ($38M). Veda's infrastructure powers Kraken's DeFi Earn product, with $225 million in deposits across three vaults serving 43,000 active depositors. Veda raised $18 million in a funding round led by CoinFund.
Combined, the three entities represent roughly $19.7 billion in total value locked — approximately 38% of the $51.8 billion DeFi lending category tracked by DefiLlama.
DeFi lending TVL reached $56 billion as of early November 2026, having climbed 55% since July, according to data compiled by Gokhshtein Media. The sector shed $11.3 billion in Q2 as TVL fell 16.8%, largely triggered by confidence loss following the April Kelp DAO cross-chain exploit.
Yet penetration into the broader stablecoin market remains thin. Token Terminal reported on November 4 that less than 10% of circulating stablecoins are deposited in DeFi protocols. Of $298 billion in total stablecoin supply, just $24 billion — approximately 8% — is deployed for yield. USDC leads DeFi stablecoin deposits with a 38.2% share ($9.2 billion), and the top three tokens account for roughly two-thirds of all deposits across 193 assets on 31 chains.
The gap between total stablecoin supply and DeFi deployment suggests significant capital sitting on the sideline. Regulatory clarity — or the absence of it — is one factor. Institutional treasuries and compliance departments require clear legal standing before allocating to on-chain yield strategies.
The submission arrives at a specific moment in the SEC's multi-year shift from enforcement to frameworks:
SEC crypto enforcement actions dropped 27% in 2025, with total settlements falling 45% to approximately $808 million, according to data cited by King & Spalding. The agency has paused or ended 60% of crypto investigations since January 2025, according to The New York Times.
Commissioner Peirce's July 22 statement, titled "Headstands and Summervaults," drew a line that the Aave-Kamino-Veda filing directly responds to.
Peirce stated that parties managing vaults "by selecting the yield-generating activities, re-allocating assets among yield-generating assets, or selecting the parties that will make those decisions" may need to analyze whether their activities trigger securities laws. Those "setting interest rates, deciding which assets to accommodate, setting loan-to-value limits, and establishing liquidation thresholds" face similar questions.
The filing's response: these functions are administrative, not discretionary investment management. Governance sets rules; it does not exercise case-by-case judgment over deposited capital. The distinction matters because the Investment Company Act exemptions and Advisers Act applicability turn on whether the operator exercises "discretion" over client assets.
The concession regarding curator-managed vaults that involve securities-classified assets suggests the filing's authors recognized they cannot claim blanket exemption for all vault architectures. This creates a spectrum: fully automated, parameter-governed vaults on one end; actively managed vaults with human curators selecting security-token allocations on the other.
The SEC has not responded publicly. The filing includes a request to meet with staff; no date has been confirmed.
Three outcomes are plausible:
Staff no-action guidance. The SEC's Crypto Task Force could issue informal guidance consistent with the framework's conclusions, similar to the no-action letters common in traditional securities law. This would provide protocol-specific comfort without formal rulemaking.
Incorporation into Regulation Crypto Assets. The August 2026 proposed rulemaking is still in comment period. The submission's analytical framework could inform final rules governing DeFi lending, particularly the distinction between automated protocols and managed vaults.
No response. The SEC is under no obligation to engage. With the Democrat sweep in the November 4 midterms introducing new uncertainty around crypto legislation, the agency may defer to Congress or take no position pending new leadership priorities.
The filing's practical impact may be largest for institutional intermediaries — exchanges, custodians, and asset managers — that have avoided DeFi lending integration due to regulatory risk. Kraken's use of Veda vaults already demonstrates one compliance pathway. Formal SEC acknowledgment would lower the barrier for others.
The Aave-Kamino-Veda submission represents the DeFi lending sector's first coordinated attempt to define its own regulatory perimeter using existing securities law rather than requesting special treatment. The framework's analytical rigor — walking through Howey, Reves, the Investment Company Act, and the Advisers Act — sets a higher bar than previous industry engagement, which tended toward broad claims of decentralization as a shield.
Whether the SEC accepts these arguments is uncertain. The agency's shift from enforcement to frameworks creates an opening, but the Peirce warning demonstrates that on-chain operations are not presumptively exempt. The $50 billion question is whether the SEC views DeFi lending as fundamentally different from traditional securities arrangements or merely the same activity dressed in smart-contract wrappers.
The filing's most telling feature is what it concedes: discretionary vault management may require registration. That acknowledgment — from the industry's own flagship protocols — narrows the debate to where human judgment begins and automation ends. The line between those two will define the regulatory boundary for DeFi's largest capital pool.