TuongVy Le

General Counsel @veda_labs

[TuongVy Le @TuongvyLe12]

@JacobRobinsonJD @theblockprof @DEXintheCityPod @Unchained_pod TY and thanks for coming on as a guest!!

[TuongVy Le @TuongvyLe12]

@banamlas @kkirkbos @DEXintheCityPod ❤️ and we loved having you on as a guest!

[TuongVy Le @TuongvyLe12]

Catch the full episode here:

https://t.co/DJybeKfVvi

And all our past episodes here!

https://t.co/xNBfRqyxbu

[Laura Shin @laurashin]

The Last DEX in the City: Three Female Crypto GCs Reflect https://t.co/9pcDu1pSSA

[TuongVy Le @TuongvyLe12]

Our final episode of @DEXintheCitypod on @Unchained_pod is out today. I will miss it.

Every week, I got to work through hard questions about crypto, markets, and the law with two of the most brilliant women in the space. For our last episode, we did something a little different: instead of the news of the week, we reflected on being lawyers in crypto and how far the industry has come.

We are so grateful to everyone who came on the show, let us into their workouts and morning commutes, rooted for us, or yelled at us through the screen 🙂.

Most of all, I’m grateful to @kkirkbos and @Jessi_Brooks1 for their fearlessness, friendship, and willingness to go down every regulatory rabbit hole with me. I’ve learned so much from you guys over the years and had the most fun doing it. Thank you also to @laurashin and the @Unchained_pod team for the opportunity and support.

For now: peace out from @DEXintheCityPod 🏙️✌️

Stay tuned for whatever questionable idea we come up with next.

[Laura Shin @laurashin]

TuongVy Le on the day after FTX, a Senate meeting, and learning to separate her identity from the industry

"One of the biggest lessons, you can care a lot about this work without letting it become your whole identity. So many of us left stable careers to join, so defending the industry got tied up with defending our own life choices."

"I'll give a personal example I've never really told anyone. When FTX happened, it hit me really hard. A day or two after it collapsed I had a scheduled meeting with a Senate office."

"I showed up with all my usual talking points about clear rules and responsible regulation, and partway through I got so emotional I had to stop. The staffers were kind, gave me a moment and a tissue."

"It was a real wake-up call. I'd attached part of my identity to the belief that this industry was worth defending, so even though FTX had nothing to do with my work, it felt like a personal betrayal."

"The lesson, separate the potential of the technology from the individual actions of people who do bad things. You can learn from those failures and still keep building."

[DEX in the City Podcast @DEXintheCityPod]

Inside Bitget's $388M Hack: How the Attackers Got In https://t.co/qlB1KAmudK

[TuongVy Le @TuongvyLe12]

@MuyaoShen and skin treatments lol

[TuongVy Le @TuongvyLe12]

@shanevanderhart It is literally the best follow in all of social media

[TuongVy Le @TuongvyLe12]

Decentralization and profit are not relevant here. The point of the case is that pooled funds is not sufficient to establish an investment contract - there must also be an underlying “venture” or “enterprise.” With vaults - there is none. Rather, the vault is deploying depositors’ funds on their behalf. That’s different. Sure, that may implicate other federal securities laws, but not Howey. That’s all I’m saying.

[TuongVy Le @TuongvyLe12]

I've been saying that technical pooling or aggregation through a smart contract, standing alone, does not establish a common enterprise under Howey. Case law didn't really exist on this point b/c this tech is relatively new . . . until now! A super interesting case just dropped out of the SDNY that has implications for not just on-chain lending and vaults but also DeFi more broadly.

In Aguilar v. Baton Corp. (the https://t.co/murE4pcswN case), plaintiffs argued that horizontal commonality under Howey existed because purchasers’ SOL went into token-specific smart-contract bonding curves. Purchases and sales affected the price available to everyone else. In other words, assets were literally being aggregated in common on-chain infrastructure and participants’ transactions affected one another economically.

But the court said that wasn’t enough. Applying Revak, a case we all know and love, Judge McMahon reasoned that a common pool only establishes horizontal commonality if the pooling ties investors’ fortunes to the success or failure of an underlying venture. The opinion draws an important distinction between (1) participating in a common profit-seeking enterprise and (2) merely interacting economically through shared infrastructure.

This is really, really key. Many DeFi structures involve some form of technical aggregation. Lending protocols aggregate liquidity; vaults may execute a common strategy through a shared smart contract; AMMs combine assets in common liquidity pools in which each trade changes the economic state faced by other participants; etc. None of those facts, standing alone, answers the legal question whether participants have invested in a common enterprise.

For decentralized lending, the question is whether the pool itself is an enterprise whose success generates suppliers’ returns, or is it infrastructure through which independent borrowers and lenders transact under common rules?

For non-custodial vaults, the question is harder: participants may share exposure to an aggregated portfolio, which can be evidence of commonality. But https://t.co/murE4pcswN says, you can't stop there. You have to also ask: what is the alleged underlying enterprise? Has capital been committed to a separate venture that owns and operates the assets for its own account? Or does shared software coordinate execution while participants retain individually enforceable ownership and redemption rights?

The opinion is also explicit about keeping Howey’s elements separate. Promoter activity (ahem, a curator) may matter to the “efforts of others” prong, but it cannot simply be reused to establish the common-enterprise element too. Otherwise, as Revak warned, the two inquiries collapse into one.

In other words, “the assets are in the same smart contract/pool” is not the end of the Howey analysis. This matters for lending protocols, vaults, and DeFi more generally.

[TuongVy Le @TuongvyLe12]

You can read the opinion here:

https://t.co/K2qYN88QG8

[TuongVy Le @TuongvyLe12]

At @veda_labs we think a lot about user protection and how different product design choices affect security or potentially trigger regulatory obligations. The reality is, so much of DeFi involves tradeoffs, so it's good to be upfront about them and debate it in a nuanced way.

[Sun @sunandr_]

There is a good discussion to be had here, but it is wrong to claim non-custodial vaults are "solved".

Let's think through some of the features of Morpho Vaults V2 and their costs / tradeoffs:

- Timelocks: this is more of a security mechanism than it is a non-custodial feature. The argument goes that if users don't like new collateral markets being whitelisted, they have sufficient time to withdraw.
But when you consider that most users (1) are coming through fintech platforms and (2) have no idea how to evaluate the risk of different collateral, there is very clearly still a major trust assumption. A user on Robinhood is not studying the collateral composition. They are trusting some combination of Robinhood, Steakhouse, or Morpho to protect them.

- In-kind redemptions: Morpho Vaults V2 use a queue-based system where the caller can choose which markets to take ownership of. This creates an adverse selection problem: if there is an issue with one of the collateral markets, the least sophisticated users are the ones left holding that position while the more sophisticated users escape with only exposure to the safe markets.
Allocation of liability is a complicated problem and letting the market fend for itself has tradeoffs.

- Onchain accounting: it is uncontroversial to say that vault accounting should be as transparent and auditable as possible. It is a motte-and-bailey argument to suggest that doing all accounting onchain is the solution to this.
The vast majority of exploits in the history of vaults has been due to manipulation of onchain accounting systems. When there is immediate feedback between an onchain action and the vault's canonical exchange rate, that system becomes a clear target.
On top of that, we've historically seen dozens of scenarios where a collateral market is exploited, rendering the capital lent on that market never accessible (why would a borrower repay?). Those assets continue to be treated at 1-1 creating a bank run incentive and again leaving the most unsophisticated users holding the bag.

- Immutable contracts: Making contracts immutable does not mean that the system cannot change under you. Smart contracts that are modular (e.g. use external adapters) can still change their security assumptions / functionality.
The benefit of immutability is that these changes theoretically happen in a more predictable and transparent way.
However, there are tradeoffs. If there is a bug in core smart contract logic, immutability makes it impossible to fix.

My point here is not that these are bad features. I think directionally these features are attempting to address important problems in consumer protections.
But these problems are nuanced and we shouldn't pretend like know the best structure to address them.

[TuongVy Le @TuongvyLe12]

@0xYager @StaniKulechov "non-custodial" has no settled meaning (technical, legal, or otherwise) which is the problem

[Laura Shin @laurashin]

The instinct says a clear certification standard would help crypto get bank access.

@TuongvyLe12 isn't so sure. She argues it could just as easily formalize the debanking crypto has fought for years. 🏦

[TuongVy Le @TuongvyLe12]

@PinstripeBungle @gracecamille_ yes

[Solana @solana]

.@krakenfx clients can now earn yield on tokenized stocks.

SPYx, QQQx and NVDAx are deposited into @veda_labs vaults and receive rewards back in the same asset, with the yield generated on Solana through @kamino.

[Sun @sunandr_]

One of the benefits of tokenization is enabling new usecases for traditional assets.

There is a war happening now for market share in tokenized equities, and yield is always a powerful customer acquisition and retention tool.

Super excited about these vaults - one of the most unique launches in recent history.

Oh, and @veda_labs is now on Solana 👀

[Veda @veda_labs]

Today, @KrakenFX and Veda expand Earn to tokenized stocks.

→ strategy @sentora
→ tokenized stocks @xstocksfi
→ wallet @privy_io
→ on @solana
→ yield @kamino
→ interop @chainlink

Kraken is the world’s first platform to offer yield on tokenized stocks, starting with SPYx, QQQx, and NVDAx.

[TuongVy Le @TuongvyLe12]

@johnjdagostino @LawofCodeFM maybe it is :)

[TuongVy Le @TuongvyLe12]

There's been a lot of debate about whether and how the securities laws apply to vaults. On @LawofCodeFM I got to nerd out on what I think is the hardest question: whether vaults implicate Howey.

TLDR: For most of financial history, executing a collective investment strategy required assets to be placed into a legally pooled vehicle controlled by a manager. Courts therefore came to treat shared management, proportional returns, and collective administration as evidence of a common enterprise.

Non-custodial, programmable smart contracts like vaults break that historical link. A vault can execute one strategy across many participants while each person retains continuous ownership, control through their own wallet, and an individually enforceable right to redeem. The curator directs strategy within a code-constrained mandate, but never receives the assets as capital for its own business.

That is the novel point: collective execution can now exist without investment in a promoter-owned venture. A curator’s efforts may satisfy one part of Howey, but they cannot substitute for the separately required common enterprise prong. The absence of legal pooling also helps answer the Investment Company Act question.

I discuss this and more alongside some amazing guests on this episode, who I learned so much from. Thanks @JacobRobinsonJD for having me!

[Jacob Robinson @JacobRobinsonJD]

.@TuongvyLe12, general counsel at @veda_labs, on why a properly designed vault may fail Howey's common enterprise prong:

"Historically, when you have one party that is investing or administering assets collectively, that party also held legal title to those assets.

"So courts have always used this idea of collective administration of assets as a stand-in for these assets are legally pooled. The two things always came together.

"What's really fascinating about a non-custodial vault is that it breaks that link. It coordinates execution of a strategy across a lot of participants while actually keeping each participant's assets cryptographically segregated and under the participant's own control."

[TuongVy Le @TuongvyLe12]

@CodyCarboneDC @rwasummit @centrifuge @itsbhaji wut how did I miss this!