SEC Proposes Crypto Sandbox for Testing Innovation Under Lighter Oversight

The U.S. Securities and Exchange Commission (SEC) is advancing plans to establish a regulatory framework for digital asset innovation through a proposed "innovation exemption," aiming to streamline product development for crypto firms while maintaining investor protections. SEC Chair Paul Atkins confirmed the agency's focus on finalizing the rule by year-end 2025, aligning with directives from President Donald Trump to foster a more hospitable environment for the crypto sector. The exemption would provide temporary relief from existing securities laws, allowing companies to test new products under lighter oversight while the SEC develops tailored regulationsSEC's Atkins Says Agency Pushing Toward 2025 Rules Allowing^[2].

The proposal includes a conditional exemption for initial coin offerings (ICOs), requiring firms to register with the SEC and adhere to basic compliance measures. A public-facing verification tool is also under development to enhance transparency and deter misuse of the exemptionSEC.gov | RE: Comment on Conditional and Time-Limited …^[1]. Atkins emphasized the need for a "stable platform" to enable crypto firms to introduce products without being constrained by outdated regulatory frameworks, a shift from the agency's enforcement-heavy approach in prior yearsSEC's Atkins Says Agency Pushing Toward 2025 Rules Allowing^[2]. The SEC has already taken steps to reduce barriers, such as approving exchange-traded products (ETPs) for spot crypto assets without individual reviews under Rule 6c-11SEC chair Paul Atkins pushes ‘innovation exemption’ for crypto …^[4].

The innovation exemption reflects broader efforts to modernize securities rules for digital assets. Project Crypto, launched in July 2025, aims to align U.S. financial markets with blockchain technology. Atkins' stance diverges from his predecessor, Gary Gensler, who broadly classified most tokens as securities under the Howey test. The new approach acknowledges that not all tokens are securities, with classification dependent on their structure and use caseSEC chair Paul Atkins pushes ‘innovation exemption’ for crypto …^[4]. This flexibility could attract startups and innovators seeking clarity while navigating a rapidly evolving industry.

Industry stakeholders have welcomed the initiative, though challenges remain. The rulemaking process involves multiple stages, including public comment periods, which may delay finalization beyond the projected timeline. Meanwhile, Congress is working on the Digital Asset Market Clarity Act, which seeks to define regulatory roles for the SEC and Commodity Futures Trading Commission (CFTC). Atkins expressed support for legislative efforts but stressed the SEC's ability to act independently on policy mattersSEC's Atkins Says Agency Pushing Toward 2025 Rules Allowing^[2].

The innovation exemption is part of a broader regulatory pivot under Trump's administration, which has prioritized crypto-friendly policies. Recent actions include the approval of multi-asset crypto ETPs and the issuance of informal guidance on topics like memecoins and stablecoins. Analysts note that the exemption could position the U.S. as a global leader in crypto innovation, provided the rule balances flexibility with safeguards against fraud and market manipulationSEC plans to introduce innovation exemption for crypto firms by EOY^[3].