SEC Proposes “Innovation Exemption” That Could Change the Game for DeFi

Key Takeaways

• SEC chief Paul Atkins announced that the agency will offer DeFi innovation exemptions under new crypto regulations.
• This is the first time the agency has acknowledged the decentralized nature of the DeFi world and how the same securities laws can’t apply.
• This is a significant policy shift from the SEC under Gensler, who called for regressive DeFi rules akin to CEXs.

The U.S Securities and Exchange Commission (SEC) is working to ensure decentralized finance (DeFi) remains truly decentralized.

In its latest address, the SEC chief, Paul Atkins, hinted at a significant policy shift for DeFi protocols and said that the agency will ensure “Innovation Exemption” for various DeFi protocols.

SEC Says DeFi Embodies the American Spirit 

In his address , SEC chair Atkins noted that DeFi embodies the American spirit: economic liberty, property rights, and open innovation.

Atkins noted that many entrepreneurs are developing software applications designed to function without the administration of any operator.

The SEC chief acknowledged that current securities regulations may not be a good fit for such a decentralized ecosystem and said:

“Most current securities rules and regulations are premised upon the regulation of issuers and intermediaries. The drafters of these rules and regulations likely did not contemplate that self-executing software code might displace such issuers and intermediaries.”

Atkins directed the staff to consider a conditional exemptive relief framework or “innovation exemption” to expeditiously allow registrants and non-registrants to market on-chain products and services.

The SEC chief noted that the innovative exemptions could help fulfill President Trump’s vision to make America the “crypto capital of the planet.”

The focus will be encouraging developers, entrepreneurs, and other firms willing to comply with specific rules to innovate with on-chain technologies in the U.S.

SEC Under Trump Takes True DeFi Approach

The SEC under Donald Trump has significantly deviated from crypto policy compared to the Biden-era SEC under Gary Gensler.

Under Gensler, the SEC introduced DeFi rules that called for significant limitations and treated them similarly to centralized exchanges, forcing them to report and store user data, which is against the DeFi ethos.

This caused a massive uproar in the crypto community, with key stakeholders protesting against the proposed reporting rule changes. It ultimately became a key catalyst for the crypto community to support and back pro-crypto politicians.

The DeFi ecosystem is a decentralized economy by nature, and thus, putting it under the same jurisdiction as centralized platforms could undermine its essence.

Under Trump-appointed Atkins, the SEC is open to keeping DeFi decentralized while ensuring that bad actors don’t get away by claiming to be a decentralized platform.

Despite criticism of the president’s crypto endeavours, the Trump administration has fulfilled most crypto promises and undone years of regulatory damage in just the first few months.