A New Path: Vaults as Qualified Custodians

The way we safeguard digital assets is about to change.

For decades, financial regulation has assumed that protecting investors requires intermediaries: custodians, balance sheets, and institutional gatekeepers. But crypto introduced something fundamentally different.

Today, we submitted a letter to the SEC and CFTC proposing a new path:

Non-custodial smart contract vaults can satisfy the SEC’s qualified custody and CFTC’s customer property segregation requirements — under defined guardrails.

At a high level, custody and segregation rules have always been solving for the same risks: misappropriation, commingling, and exposure to intermediary insolvency. What’s changed is that we now have infrastructure that can address those risks directly in code, rather than through reliance on intermediaries.

Properly designed vaults mean:

• Client assets are never exposed to intermediary insolvency
• Withdrawal rights can’t be overridden, even by insiders
• Misappropriation is structurally constrained
• Asset ownership is continuously verifiable in real time

Offering vaults as an option matters because many digital assets cannot be supported by qualified custodians today, and advisers face real tension between compliance frameworks built for traditional markets and the realities of onchain assets.

But recent events have also made something clear: Not all “vaults” meet the standard investors should expect. Using smart contracts alone is not enough. Security and investor protection depend on how these systems are designed, governed, and constrained.

That’s why our letter proposes 7 guardrails for a vault to qualify:

1. No unilateral authority to withdraw client assets 
2. Programmatic enforcement of client redemption, withdrawal, and transfer rights 
3. Cryptographic segregation of client assets
4. Governance and upgrade mechanisms must be transparent, time-locked, and constrained 
5. Robust security and operational controls
6. Independent audits and real-time verification
7. No economic interests in underlying protocols

These guardrails distinguish between vaults as infrastructure for investor protection and vaults as unstructured risk.

If adopted, this would be the first regulatory framework where investor protection is achieved through non-custodial, programmable systems rather than institutional intermediation. Safeguarding is embedded in the infrastructure itself.

We believe this is precisely the type of alternative compliance framework envisioned by the recent SEC–CFTC MOU, and we encourage both agencies to engage through the Joint Harmonization Initiative to develop a coordinated, vault-based custody standard.

Read more in our letter linked below:

Recommendations Regarding Recognition of Vaults as Satisfying SEC Qualified Custody and CFTC Segregation Requirements for Digital Assets