Aave joins Kamino and Veda in submitting arguments to the SEC: DeFi lending and vaults should not be classified as securities
Author: Aave Labs
Compiled by: TechFlow
TechFlow Digest: This is an official positive statement from Aave Labs to the SEC: The three leading lending and vault protocols are not seeking a "safe harbor" or exemption, but instead argue that under current law, the lending protocols themselves, DAO governance, and non-custodial vaults do not constitute securities offerings. If the SEC accepts this logic, the regulatory risk of securities registration hanging over governance tokens like AAVE and on-chain vault products will decrease significantly; conversely, the more open the DAO governance, the more likely it is to be classified as "managerial effort," which is precisely the loophole the article aims to close. The article also openly acknowledges that the SEC has not yet indicated agreement, and actively curated vaults with performance fees remain the most difficult aspects to navigate.
Today, Veda, Kamino, and Aave Labs publicly released a summary of a legal framework addressing decentralized lending protocols and non-custodial vaults. On October 26, the three institutions submitted a detailed confidential version to the SEC’s Crypto Task Force and the Division of Corporation Finance, requesting a meeting with staff. The public version can be reviewed here.
This document answers the following question:
Does federal securities law apply when users supply assets to a decentralized lending protocol or borrow against their own collateral?
For this type of protocol described in the document, the answer is no. The document explains the reasoning step by step, indicating at each stage which facts support this conclusion.
Starting with decentralized lending protocols. Regulatory discussions around DeFi mostly center on products built atop lending protocols, including vaults. Aave Labs wants to push the analysis one layer deeper, starting with the protocol itself—the “base layer” for vaults. If the base layer is considered a securities issuer, then every vault would inherit obligations under securities law. Therefore, the document uses the current operational reality of lending protocols as its analytical subject: open markets governed by their respective communities, which hold genuine governance power over the market.
There are no lenders, no loans, and no commitments. Securities law is built around “commitments”: if a company takes your money and promises you returns, the law requires that company to disclose, register, and take responsibility for its promises. Such commitments simply do not exist in decentralized lending protocols. One user supplies their assets to the market while retaining full control over their position; another user withdraws assets after the protocol values the collateral they deposited with their own funds. Neither party owes the other anything, nor owes anyone else anything. No company intermediates between them, and no one takes possession of anyone else’s assets. Using the protocol does not create any legal relationship. The document does not describe these transactions as loans, but explains why they do not constitute debt at all. Securities law protects investors by regulating those who make promises to them; where no one makes promises and no one holds others’ assets, users are protected by open rules, open code, and the ability to exit at any time.
Governance is administrative rather than managerial. This point is most critical for Aave and DAO-governed protocols. Token holders are responsible for listing assets, adopting interest rate models, and setting collateral and liquidation parameters—essentially what a market’s rulebook does. The DAO does not select anything on behalf of any supplier, does not control anyone’s assets, and cannot touch assets already provided by users. Any changes take effect only after public notice and a timelock, allowing users to withdraw before the changes affect them. Even if governance ceases to operate tomorrow, the market will continue running according to the rules in place at that time. The document requests the SEC to recognize that public, timelocked governance of market rules constitutes administrative action rather than a commitment upon which investors rely; protocols need not be frozen in place or stripped of their communities to fall outside securities law. The opposite outcome—that the more open and accountable market governance becomes, the more exposed it is to securities law—is incorrect for both users and the law.
The “common enterprise” element addressed directly, not conceded by default. Every iteration of the Howey Test requires a “common enterprise,” and the SEC’s 2026 interpretation confirms that this element must be satisfied independently and cannot be presumed. The document addresses this head-on: suppliers to lending protocols do not provide financing for anyone or anything; borrowers deploy liquidity for their own purposes; interest accrues at published unit rates, meaning no supplier’s return depends on other suppliers. Suppliers share infrastructure and pricing, not the fortunes of a single enterprise. The recent ruling in Aguilar v. Baton Corp. applied similar reasoning to shared smart contracts, supporting the conclusion that no common enterprise exists under these protocols.
Focus on the transaction, not the token. Some protocols issue a receipt token when users supply assets, while others merely record positions in their internal ledger without issuing tokens. Regardless of the method, user rights remain identical. The document requests the SEC to characterize the transaction itself, treating tokens merely as evidence of the transaction, thereby preventing two identical positions from being treated differently simply because one is associated with a token.
Vaults hold your assets, but they do not own them. Many users enter lending markets through non-custodial vaults: vaults either deploy supplied assets according to fixed strategies coded into the system, or are deployed by a curator whose permissions are restricted by code. The document reaches the same conclusion for vaults, albeit through a different line of reasoning. In vault transactions, no one promises to repay anyone, so no promissory note (note) exists. Users retain ownership of their proportional share of the vault assets, and the curator cannot withdraw or misappropriate them. Therefore, holding positions together is administrative, not a common enterprise. A user running the exact same strategy from their own wallet occupies the identical position. Even if the curator exercises discretion, it does so within limits pre-approved by the user, and any changes require notice and a timelock before taking effect on user assets. Since no fund intermediary stands between the user and their assets, the vault is not an investment company. A curator paid for making investment decisions regarding securities may qualify as an investment adviser, but it lacks custodial authority because the code does not allow it to seize user assets.
No request for exemptions. The document does not ask for a safe harbor, an exemptive plan, a set of additional conditions, or the creation of a compliance entity to replace the market. It relies on currently existing law, requesting the SEC to confirm what the law already stipulates. For more challenging issues—particularly actively curated vaults and performance-based fees—the document addresses them candidly and provides direct answers rather than seeking legal exemptions.
This public summary is drafted in a general manner, so any protocol or vault with identical characteristics can apply it. Aave Labs and its co-authors welcome feedback and discussion from protocols, vault builders, DAOs, and everyone building on-chain finance.
The document does not claim that the SEC agrees with its position. Aave Labs looks forward to engaging in dialogue with the SEC.
This article and the referenced document are for informational purposes only and do not constitute legal advice. Relevant conclusions depend on the design features described in the document.