- The Crypto Council for Innovation (CCI), alongside Bitwise, Galaxy Digital, and Morpho, has proposed a two-sided “Control Framework” to evaluate crypto vaults under U.S. federal securities laws.
- Total assets deposited in crypto vaults reached $131 billion in April 2026 as traditional financial institutions increasingly explore on-chain vault technology.
- Industry leaders are urging the SEC to use a relief model similar to crypto ETFs, granting individual Section 6(c) exemptions before establishing standardized rules.
Industry Coalition Pushes for Control-Based Regulatory Standards for Crypto Vaults
As on-chain vault adoption expands rapidly past decentralized finance (DeFi) into traditional finance, industry advocates are calling on regulators to provide clear oversight guidelines. According to data from S&P Global, assets deposited in vaults reached $131 billion in April 2026. In response to this rapid expansion, the Crypto Council for Innovation (CCI)—collaborating with executives from Bitwise, Galaxy Digital, and Morpho—is arguing that crypto vaults should not automatically fall outside U.S. federal securities laws merely because they function through automated smart contracts and blockchain technology.
Advocates maintain that establishing sensible regulatory pathways is vital as capital markets increasingly integrate programmatic fund management. Emphasizing the transformative nature of these products, Bitwise CEO Hunter Horsley stated:
“Vaults are going to change capital markets. We’re delighted to get to be a part of it.”
CCI’s Dual “Control Framework” to Evaluate Decentralization
To establish how vaults should be classified, the CCI released a comprehensive report outlining a two-sided “Control Framework.” The proposal is designed to assess the precise degree of authority human operators maintain over pooled capital versus the level of autonomy and transparency granted to individual depositors. Rather than treating all on-chain vaults as identical instruments, the framework evaluates the substantive operational mechanics of each protocol.
On the operator side, the framework analyzes four key dimensions: mandate, execution, governance, and disposition. These factors determine whether an identifiable management team has the discretion to set investment strategies, shift capital allocations, alter the protocol’s fundamental code, or seize and transfer deposited assets. Conversely, the depositor side evaluates six conditions: comprehensibility, verifiability, observability, predictability, notice, and actionability. Under this structure, vaults governed by immutable code, transparent rules, minimal human intervention, and permissionless exits would receive a distinct regulatory assessment compared to custodial or actively managed arrangements where operators hold unilateral discretion.
Mirroring ETF Precedents and Legislative Proposals
The proposed framework aligns closely with legislative concepts such as Section 10301 of the proposed CLARITY Act, which classifies protocols based on whether specific groups or individuals hold the power to materially change system functionality. In its proposal, the CCI is encouraging the U.S. Securities and Exchange Commission (SEC) to replicate the regulatory playbook previously utilized for crypto exchange-traded funds (ETFs). This strategy recommends issuing tailored exemptive relief under Section 6(c) of the Investment Company Act of 1940 to qualifying vault architectures before transitioning to a broad, standardized regulatory regime.
Underscoring the industry’s desire for active engagement with regulatory bodies, Horsley noted:
“We worked with regulators for years to help make crypto ETFs possible. We’re happy to collaborate again, this time on vaults.”
Addressing Structural Risks and Divergent Protocol Designs
The industry initiative aligns with previous warnings from regulatory officials, including SEC Commissioner Hester Peirce. In her July 22 statement titled Headstands and Summervaults, Peirce explicitly cautioned regulators and market participants against applying sweeping assumptions across the sector, noting:
“Vaults are not uniform”
Scrutiny surrounding internal asset governance has also intensified following analysis from AMBCrypto, which revealed that several notable Web3 protocols have gradually shifted away from early ideals of complete permissionlessness and decentralization. Systems such as Hyperliquid, Aave, and Polygon have implemented mechanisms that direct capital into internal vaults, token buybacks, and protocol treasuries instead of executing programmatic, direct distributions to token holders—highlighting why nuanced oversight is necessary.
Why This Matters
With more than $131 billion locked into programmatic structures as of April 2026, crypto vaults represent an evolving bridge connecting decentralized protocols to institutional balance sheets. Without tailored regulatory classification, innovators risk non-compliance under legacy securities legislation, while investors face varying degrees of hidden custodial risk. By pushing the SEC to adopt a model rooted in technical control and exemptive relief, coalition members aim to provide institutions with a safe, compliant ramp into programmatic asset management without stifling decentralized, immutable software.
Frequently Asked Questions
What is a crypto vault under the CCI proposal?
Under the Crypto Council for Innovation’s proposal, a crypto vault is an on-chain smart contract arrangement holding pooled assets. The framework categorizes them based on operational control—distinguishing fully automated, immutable vaults with permissionless user withdrawals from centralized or discretionary strategies managed by identifiable administrators.
What regulatory mechanism is being proposed for SEC oversight?
The CCI recommends that the SEC follow its historical precedent from crypto ETFs by initially granting individualized exemptions under Section 6(c) of the Investment Company Act to qualifying, low-discretion vault designs before formalizing industry-wide, standardized rules.
How does the framework define the difference between operators and depositors?
The framework reviews operator authority across mandate, execution, governance, and disposition to determine if humans can reallocate assets or alter software rules. For depositors, it reviews comprehensibility, verifiability, observability, predictability, notice, and actionability to ensure users can inspect the code and withdraw their funds autonomously.
