Why Veda Is Taking the Future of Onchain Finance to the SEC

Our new legal framework explains why securities regulation should follow the rights, obligations, and powers created by onchain financial infrastructure.

Today, Veda, Aave Labs, and Kamino Foundation are publishing a public summary of a legal framework addressing how the federal securities laws apply to decentralized lending protocols and non-custodial vaults. On October 26, 2026, we submitted a more detailed version to the Securities and Exchange Commission and requested engagement with SEC staff. The public summary is available here.

The paper addresses a fundamental question for the future of onchain finance: How should securities laws apply when financial activities traditionally performed by intermediaries are carried out through smart contracts, with ownership, control, and decision-making distributed among different participants?

For Veda, this question goes to the heart of what we’re building. Our infrastructure enables businesses and financial institutions to offer onchain financial products and strategies through smart contracts that execute transactions, enforce risk parameters, and preserve users’ custody and rights over their assets. These arrangements can perform many of the same economic functions as traditional financial products while creating fundamentally different legal relationships. Our paper explains why those differences matter under existing securities laws and offers a framework for evaluating emerging financial technologies based on the rights, obligations, and powers they actually create.

Financial Infrastructure Has Changed. The Legal Analysis Must Account for It.

Traditional financial products often depend on a familiar institutional structure. Investors transfer assets to a financial institution or investment vehicle, which takes ownership or custody, manages investments, and assumes legal obligations to investors. These functions have historically been concentrated within identifiable intermediaries, and the federal securities laws developed around the legal and economic relationships those arrangements create.

Blockchain technology allows these functions to be separated and distributed among users, smart contracts, governance participants, and service providers. Smart contracts can deploy assets into lending markets, execute staking and liquidity strategies, enforce investment parameters, and process redemptions without an intermediary taking legal ownership or acquiring unilateral authority to withdraw user assets. Some strategies may be automated, while others involve ongoing decisions by curators operating within programmatically enforced limits. In each case, the allocation of rights and powers depends on the design and governing terms of the arrangement.

This matters because the federal securities laws regulate particular legal and economic relationships. Whether an arrangement involves an investment contract, creates a debt security, constitutes an investment company, or gives rise to a custodial relationship depends on what rights and obligations exist and who exercises effective authority. The presence of a familiar financial function does not necessarily establish the legal relationships historically associated with that function.

Our central argument is that securities regulation should follow the substance of the arrangement: who owns the assets, who assumes obligations, who exercises authority, and whose economic fortunes are at stake. The use of common infrastructure, receipt tokens, or discretionary service providers cannot independently answer those questions.

What Our Paper Says About the Securities Laws

Our paper examines decentralized lending protocols and non-custodial vaults under four major federal securities law frameworks: the investment contract test under Howey, the treatment of notes under Reves, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. It concludes that the protocol and vault arrangements analyzed do not constitute investment contracts or notes, that the described vaults are not investment companies, and that compensated investment discretion does not necessarily confer custody of client assets.

Under Howey, shared infrastructure does not necessarily create a common enterprise. Users of decentralized lending protocols may supply assets to common smart contracts and receive interest determined by published formulas without investing in a shared business or venture. Similarly, users of non-custodial vaults may participate in common strategies while retaining enforceable interests in the underlying assets and independently exercisable redemption rights. The paper argues that shared infrastructure, coordinated financial activity, and even the presence of an investment manager do not automatically establish the common enterprise that Howey independently requires. For actively curated vaults, the analysis must also examine how gains and losses are allocated and whether users have joined a collective investment undertaking.

Under Reves, familiar lending terminology does not necessarily establish a debt security. Decentralized lending protocols permit users to supply assets and borrow against collateral without necessarily creating the debtor-creditor relationships associated with traditional lending. Similarly, the non-custodial vaults analyzed do not involve an intermediary issuing a debt instrument or promising repayment on its own credit. The relevant inquiry turns on the legal obligations created by the arrangement, including whether anyone has undertaken an enforceable repayment promise.

Under the Investment Company Act, the threshold question is whether an issuer exists. The paper explains why infrastructure that coordinates financial activity through smart contracts does not necessarily constitute an investment company. A vault may deploy assets according to automated rules or strategies selected by a curator without creating a separate organization that owns those assets and issues securities representing interests in them. Even where a vault holds predominantly securities, the statute's asset-composition tests require first identifying an issuer whose assets are being measured. A curator's investment decisions, the existence of receipt tokens, and the use of shared smart contracts do not, individually, establish that an issuer exists.

Under the Investment Advisers Act, investment discretion and custody remain distinct legal questions. A curator providing compensated investment advice concerning securities may be subject to investment adviser requirements. But authority to select investments does not necessarily include authority to take possession of client assets. Smart contracts can constrain a curator's activities through approved destinations, exposure limits, independent permissions, and restrictions on withdrawals, allowing investment decisions to be implemented without conferring custody. The analysis must examine the actual authority available to each participant, including indirect routes to control through upgrades or administrative permissions.

These conclusions depend on the specific architecture, contractual arrangements, and allocation of rights and powers described in the paper. Different ownership structures, repayment promises, discretionary authorities, or redemption restrictions could change the legal analysis. The broader contribution is a framework for determining which features matter under each statute and why.

Why This Matters for the Future of Onchain Finance

The significance of this framework extends well beyond decentralized lending and vaults. As financial institutions bring more activities onchain, programmable infrastructure will increasingly allow functions historically performed by a single intermediary to be separated among different participants. Financial products may operate through shared software without creating a separate issuing vehicle. Investment strategies may be executed programmatically while users retain enforceable rights to the underlying assets. Service providers may perform specialized functions without possessing the full range of powers traditionally exercised by financial intermediaries.

These capabilities are becoming increasingly important as fintech platforms, asset managers, and financial institutions explore tokenized assets, managed accounts, lending products, and other onchain financial services. Applying existing securities laws to these arrangements requires examining what the technology and surrounding legal agreements actually establish. A framework that assumes traditional intermediary relationships exist whenever familiar financial activities occur risks overlooking precisely the innovations that make onchain infrastructure different.

For Veda, this is the opportunity we're building toward. Our infrastructure is designed to enable a broad range of onchain financial products, including lending, staking, liquidity provision, and curated strategies, while preserving users' rights and constraining the authority of service providers through programmable controls. We believe these architectural features can support sophisticated financial services while enabling new ways to allocate responsibility, manage risk, and protect users.

Our submission does not ask the SEC to create an exemption, safe harbor, or special regulatory regime for DeFi. It applies existing securities laws to the arrangements described and asks the Commission to recognize the distinctions those laws already make among issuance, investment management, custody, and other financial activities.

As onchain finance becomes more deeply integrated into mainstream financial services, regulatory clarity will depend on understanding how these technologies change the relationships among the parties involved. We look forward to engaging with the SEC, policymakers, financial institutions, and industry participants on a framework that can accommodate those changes while remaining grounded in existing law.

Read the public summary here.

This blog post and the accompanying paper are provided for informational purposes and do not constitute legal advice. The conclusions depend on the particular design features and legal relationships described. The SEC has not endorsed the paper's conclusions.