Author: Aave Labs
Compiled by Deep潮 TechFlow
Shenchao Summary: This is Aave Labs' official public stance toward the SEC: the three leading lending and vault protocols are not seeking a “safe harbor” or exemption; instead, they argue that under existing laws, lending protocols themselves, DAO governance, and non-custodial vaults do not constitute securities offerings. If the SEC accepts this reasoning, the risk of these protocols’ governance tokens—such as AAVE—and on-chain vault products being classified as securities will significantly decrease. Conversely, the more open and decentralized the DAO governance, the more likely it is to be deemed “management and control”—exactly the loophole the document aims to close. The article also acknowledges that the SEC has not yet endorsed this position, and actively curated vaults with performance fees remain the most challenging aspects to navigate.
Today, Veda, Kamino, and Aave Labs publicly released a summary of a legal framework concerning decentralized lending protocols and non-custodial vaults. On October 26, the three organizations 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 is available here.
This document answers the following question:
When users provide assets to a decentralized lending protocol or borrow against their own collateral, do federal securities laws apply?
For the type of protocol described in the document, the answer is no. The document systematically explains the reasons and specifies at each step which facts this conclusion depends on.
Start with the layer of decentralized lending protocols. Most regulatory discussions around DeFi focus on products built on top of lending protocols, including vaults. Aave Labs aims to push the analysis one layer deeper, examining the protocols themselves—the underlying foundation of vaults. If the underlying protocol were considered a securities issuer, every vault would inherit obligations under securities law. Therefore, the document analyzes the lending protocols as they currently operate: open markets governed by their respective communities with genuine governance power over the market.
No lender, no loan, no promise. Securities law is built around “promises”: when a company takes your money and promises you a return, the law requires that company to disclose, register, and be held accountable for that promise. There is no such promise in decentralized lending protocols. One user supplies their assets to the market and retains full control over their position at all times; another user withdraws assets after the protocol has valued the collateral they have deposited. Neither party owes anything to the other, nor to anyone else—no company intermediates, and no one takes possession of anyone else’s assets. Using the protocol creates no legal relationship. The documentation does not describe these transactions as loans; rather, it explains why they do not constitute debt at all. Securities law protects investors by regulating those who make promises to them; where no promises are made 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, not operational. This distinction is most critical for Aave and other protocols governed by a DAO. Token holders are responsible for listing assets, adopting interest rate models, and setting collateral and liquidation parameters—tasks that constitute the rulebook of a market. The DAO does not select anything on behalf of any supplier, does not control anyone’s assets, and cannot access assets already provided by users. Any changes only take effect after public notice and a time lock, allowing users to exit before the changes affect them. Even if governance were to cease tomorrow, the market would continue operating under the rules in place at that time. The filing requests the SEC to recognize: publicly governed, time-locked rule changes for a market constitute administrative oversight, not a promise upon which investors rely; the protocol need not be frozen in place or stripped of its community to fall outside securities law. The opposite conclusion—that more open and accountable market governance makes a protocol more susceptible to securities law—is incorrect for both users and the law.
The "common enterprise" requirement must be affirmatively established, not assumed by default. Every version of the Howey test requires the existence of a "common enterprise," and the SEC’s 2026 interpretation confirms that this element must be separately satisfied and cannot be presumed. The document directly addresses this issue: lenders in the protocol do not provide financing for anyone or anything; borrowers deploy liquidity for their own purposes; interest is accrued at published unit rates, so any lender’s return is independent of other lenders’ outcomes. Lenders share infrastructure and pricing, not the fortunes of a single enterprise. The recent ruling in Aguilar v. Baton Corp. applied the same reasoning to shared smart contracts, supporting the conclusion that no common enterprise exists under these protocols.
Focus on the trade, not the token. Some protocols issue a凭证 token when users provide assets, while others only record positions on their own ledgers without issuing tokens. In either case, users’ rights are identical. The filing requests the SEC to characterize the trade itself, treating tokens merely as evidence of the transaction, thereby avoiding situations where two identical positions are treated differently solely because one is represented by a token.
The vault holds your assets but does not own them. Many users access lending markets through non-custodial vaults: the vault either deploys deposited assets according to a fixed strategy encoded in the code, or a curator—whose authority is restricted by code—deploys them. The document reaches the same conclusion regarding vaults, albeit through a different line of reasoning. In vault transactions, no one commits to repaying anyone, so no note exists. Users retain ownership of their share of the vault’s assets; the curator cannot seize or misappropriate them, making the aggregation of positions an administrative act rather than a common enterprise. A user running the same strategy directly from their own wallet would be in an identical position. Even if the curator does exercise discretion, it is strictly within the bounds of authorization pre-approved by users, and any changes must be notified and subject to a time lock before affecting user assets. There is no intermediary fund between users and their assets, so the vault is not an investment company. A curator compensated for making investment decisions regarding securities may constitute an investment adviser, but they do not have custody, as the code prevents them from taking possession of users’ assets.
No exemptions are sought. The filing does not require a safe harbor, an exemption program, a set of additional conditions, or the establishment of a compliance entity to replace the market. It applies existing laws and requests the SEC to confirm what those laws already provide. For more complex issues—particularly actively curated vaults and performance-based fees—the filing confronts them directly and provides answers, rather than seeking legal exemptions.
This public summary is written in a generalizable way, applicable to any protocol or vault with similar characteristics. Aave Labs and its co-authors welcome feedback and participation from protocols, vault builders, DAOs, and all those building on-chain finance.
The document does not claim that the SEC endorses its views. Aave Labs looks forward to engaging in dialogue with the SEC.
This document and its contents are for reference only and do not constitute legal advice. The conclusions drawn depend on the design features described herein.