SEC Shifts to Rulemaking for DeFi, Reducing Legal Uncertainty

The U.S. Securities and Exchange Commission (SEC) has initiated a significant policy shift towards decentralized finance (DeFi), transitioning from an enforcement-based approach to a more structured rulemaking process. This change aims to provide clearer guidelines and reduce legal uncertainty for crypto developers and investors.

SEC Chair Paul Atkins recently highlighted DeFi’s alignment with core American values, including freedom, property rights, and technological innovation. This recognition comes as part of broader structural changes within the agency, which now prioritize formal rulemaking over litigation. Atkins emphasized that the SEC’s new approach will involve a “notice and comment” process, allowing for industry feedback and creating more transparent guidelines for market participants.

This shift is a departure from the previous regulatory strategy under former Chair Gary Gensler, which relied heavily on enforcement actions and costly litigation. The new Crypto Task Force, established on January 21, is expected to issue its first formal report in the coming months, further outlining the SEC’s regulatory framework for DeFi.

The SEC’s recent roundtable marked a significant turning point in how regulators view DeFi platforms. Atkins described DeFi as a reflection of American economic values, indicating a more open stance towards decentralized financial systems. Although a comprehensive regulatory framework is still in development, recent actions suggest that developers and investors may soon operate with greater legal clarity.

Recent staff guidance from the SEC has clarified that several common staking mechanisms do not violate existing securities laws. Additionally, the Commission has dropped certain long-standing enforcement cases involving crypto firms, signaling a less adversarial approach towards the sector. This expanding posture has prompted discussions about potential market impacts, with investors and developers anticipating changes that could improve compliance pathways and reduce legal uncertainty for DeFi protocols operating in the U.S.

Atkins proposed the concept of "innovation exemptions" for DeFi projects, allowing developers to build without the immediate threat of legal action. This shift aims to reduce the regulatory burden on DeFi builders and encourage the development of trustless, on-chain ecosystems. The chairman argued that holding engineers accountable merely for writing code that others may use for regulated activities is unjustified. Instead, he supported the idea of self-custody and the ability of blockchain to enable peer-to-peer transactions without intermediaries.

Commissioner Hester Peirce cautioned that labeling something as "DeFi" should not exempt it from regulatory scrutiny. She emphasized the need to hold centralized entities accountable while protecting innovators’ rights. Peirce also highlighted the importance of not infringing on First Amendment rights by regulating someone who merely publishes code.

By easing operational restrictions, the SEC is paving the way for the development of trustless, on-chain ecosystems. If Atkins’ proposed innovation exemptions gain traction, it could further establish the U.S. as a hub for blockchain and DeFi innovation. The SEC is now reviewing conditional exemptive relief for qualifying blockchain startups, allowing certain projects to operate without immediate regulatory restrictions. This shift focuses on pre-event planning and active guidance rather than post-event punishment.