Chair Atkins’ Proposed DeFi Innovation Exemption

During the Securities and Exchange Commission (SEC) Crypto Task Force’s recent roundtable,  “DeFi and the American Spirit,” SEC Chairman Paul Atkins acknowledged that the foundational American values of economic liberty, private property rights, and innovation are in the DNA of decentralized finance (DeFi). Evidencing a commitment to promoting those values, and in particular, innovation, Chairman Atkins announced that he has instructed the Commission’s staff to explore a proposed “innovation exemption” from the Commission’s securities framework. 

Although very few details are available so far, it seems that the proposal would be a conditional exemptive relief framework that would allow projects to bring DeFi technology to market without being subject to securities regulations and obligations that are suited for centralized financial intermediaries. If implemented, the proposal may provide much-needed guidance around the compliance obligations required for developers, entrepreneurs, and other builders looking to innovate with onchain decentralized technologies in the United States. 

In his remarks, Chairman Atkins also highlighted the importance of self-custody and distinguished between DeFi technology and traditional intermediated markets, and recognized the incompatibility of the existing securities framework with DeFi technology, stating: 

“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 . . .

I do not believe that we should allow a century-old regulatory framework to stifle innovation with technologies that could upend and most importantly improve and advance our current traditional intermediated model. We should not automatically fear the future.” 

The “Innovation Exemption” Should Embrace DeFi Technology

Noncustodial software protocols and user interfaces are not brokers, exchanges, nor dealers under the existing securities framework. Blockchain networks, DeFi protocols, and noncustodial web interfaces allow individuals to maintain self-custody of their digital assets and execute their own transactions by replacing intermediaries with decentralized computer networks and deterministic code. These decentralized activities, depending on the unique facts, should be scoped out of the existing securities framework, and broader debates on how to regulate new decentralized technology or “mature blockchain systems” should be addressed in digital asset market structure frameworks, such as those currently being considered in Congress. 

Past Commissioners have suggested utilizing the SEC’s exemptive authority to provide relief to DeFi projects. For example, Commissioner Hester Peirce proposed a Token Safe Harbor, which would provide a nonexclusive safe harbor from securities laws for projects intending to decentralize. In April 2025, responding to Commissioner Peirce’s February 2025 Request for Information, DEF proposed Guiding Principles for a Token Safe Harbor to the Crypto Task Force. Other industry peers, including Project Open, have recently submitted proposals requesting specific exemptive relief recognizing that noncustodial, decentralized blockchain infrastructure operates differently from traditional securities intermediaries. 

DEF is encouraged by Chairman Atkins’ directive to explore a proposal that provides DeFi builders with exemptive relief. Below we suggest some guiding principles for an “innovation exemption” that we hope will be a helpful resource for the SEC as they undertake the important work of developing such an exemption. Rulemaking is never easy, and we greatly appreciate the Chairman and SEC staff working to make this exemption a reality. 

DEF believes that an innovation exemption should include three key principles: (1) Technology-agnostic rules and policies, (2) Broad, inclusive, and clear eligibility criteria, and (3) Calibrated disclosure and compliance considerations. 

Proposed Guiding Principles: Building a Tailored DeFi Innovation Exemption 

1. Strive for Technology-Agnostic Rules and Policies

   • As a foundational principle, the Commission’s rules and policies should be agnostic as to the underlying technology of the assets to which they apply, all while being adaptable, focused on substance over form, and built to mitigate the associated risks of activities rather than the specific technologies deployed.

   • Fit-for-purpose regulations should protect innovation and the unaffiliated network of participants who develop or operate the technology. In practice, we recommend ensuring policies that avoid entrenching particular technological models or favoring particular solutions to allow the technology to continue to evolve.

2. Develop Broad, Inclusive and Clear Eligibility Criteria for the Exemption 

   • While the eligibility criteria for the exemption should be broad enough to accommodate a wide range of technologies and projects, it should also be limited to projects that are: (1) intending to decentralize, and (2) capable of meeting  clear, pre-determined criteria. 

   • The innovation exemption should clearly define the criteria that a project must meet in order to fulfill the Commission’s objectives and remain exempt from securities laws.

   • Since the innovation exemption is meant to incentivize projects on the path to decentralization, those applying or registering to be exempt or utilize a safe harbor should submit clear, good faith plans to decentralize and evidence that they are designing a project that is capable of fully decentralizing in the future. This means projects would have to provide sufficient information for the Commission to evaluate the project’s compliance with the requirements imposed by the exemption or safe harbor framework.

   • The Commission should allow projects a reasonable period of time to remain exempt, so long as they continue to demonstrate verifiable efforts to decentralize and reliably make information disclosures. 

3.  Calibrated Disclosure and Compliance Considerations

   • Any information disclosure requirements associated with an innovation exemption should be carefully calibrated: they should provide the specific type of information that is material to prospective or existing users’ evaluation of the token and underlying technology, while being commercially feasible for initial development teams to provide. 

   • In this vein, relevant disclosures could potentially include, as proposed in Commissioner Peirce’s Token Safe Harbor Proposal 2.0: source code and bytecode transparency, transaction history, token economics, plan of development, history of code audits, secondary trading platforms solicited by the initial development team, initial development team members, sales of tokens by the initial development team, and related-party transactions. 

   • Additional disclosure obligations may be warranted when a person or entity retains control over a network or its associated assets, or where a limited group is responsible for development and maintenance. Including potential factors such as:

     • Team and Control Disclosures 

     • Plan of Development

     • Conflicts of Interest

     • Token Allocations

     • Code and Cybersecurity

     • Governance

     • Tokenomics 

DEF’s Perspective

An innovation exemption for DeFi technology could protect developers, support the flourishing of DeFi onshore in the United States, and create incentives for greater transparency, and decentralization across the industry. It would also establish necessary guardrails to protect users and consumers in DeFi markets, and allow smaller innovators to bring DeFi technology to market without the fear of burdensome and incompatible regulations. 

For these reasons, DEF supports Chair Atkins’ proposal and hopes to see it implemented. For a deeper understanding of DeFi Education Fund’s proposed guiding principles for a safe harbor from registration, please view our full proposal to the Crypto Task Force here. 

This blog was authored by DEF's Policy Analyst Gavin Zavatone