TL;DR:
- Aave Labs, Kamino, and Veda submitted a confidential legal document to the SEC on October 26, 2026, and released their technical summary on November 2, 2026.
- The technical analysis contends that transactions do not constitute debt notes or investment contracts under the Howey test, as there are no centralized counterparties or promises of return.
- The organizations formalized the petition before the Crypto Task Force and the Division of Corporation Finance without requesting an exemption or regulatory safe harbor.
Aave Labs, Kamino, and Veda submitted a coordinated regulatory proposal to the SEC to establish definitive criteria regarding the operation of DeFi loans.
Aave Labs and its co-authors have submitted a legal framework for decentralized lending protocols and non-custodial vaults to the SEC’s Crypto Task Force and Division of Corporation Finance.
Today, we are releasing a public summary of our paper. pic.twitter.com/nOSNk814Le
— Aave (@aave) November 3, 2026
The proposal was initially submitted confidentially on October 26 to the regulatory agency’s Crypto Task Force and the Division of Corporation Finance. The firms released the formal summary on November 2, 2026, alongside a formal meeting request with U.S. regulatory officials.
The filing directly addresses the debate over whether providing liquidity and borrowing collateralized funds on-chain constitute transactions subject to federal securities regulations. The text addresses the operational structure at its base layer and analyzes the treatment applied to non-custodial vaults.
Legal framework and application of the Howey test in decentralized protocols
The proposal submitted to the SEC argues that protocols do not execute investment contracts because there are no entities receiving capital to issue promises of financial returns. Under the framework outlined by the entities, suppliers retain ownership and control of their assets in open smart contracts, while borrowers draw liquidity against previously locked collateral.
The argument holds that deposit and withdrawal operations cannot be legally categorized as traditional debt. The documentation indicates that interest accrues via a posted per-unit rate and that individual yield is independent of the performance of other market participants.
Regarding the “common enterprise” prong required by the Howey test, the signatories assert that this criterion is not met. The legal argumentation cites the judicial ruling in Aguilar v. Baton Corp. as precedent, where it was determined that interacting over shared computer code does not constitute a joint investment enterprise. Furthermore, the position notes that deposit receipts (receipt tokens) merely reflect technical accounting without altering the legal nature of the underlying position.
Regarding governance through decentralized autonomous organizations (DAOs), the text argues that token holders administer operational market rules rather than discretionarily managing deposited capital. Parameters such as interest rates, collateral, and liquidation thresholds are executed openly through mandatory timelocks, allowing users to withdraw funds before any adjustment takes effect.
The legal framework presented by Aave Labs, Kamino, and Veda adds that non-custodial vaults do not qualify as investment companies either. The analysis points out that curators operate bound by code and public mandates previously approved by depositors. Nevertheless, the report acknowledges that if a curator makes discretionary decisions regarding assets classified as securities, it could fall under the definition of an investment adviser, even without holding direct custody of the funds.
The proponents emphasized that their initiative does not seek a regulatory exemption or a temporary safe harbor framework. The proposal urges the regulator to apply existing law by recognizing the architectural distinctions of non-custodial software compared to traditional financial intermediaries.
The participating parties remain awaiting a confirmed date for their first technical working session with SEC staff.
