SEC's DeFi Reform: Navigating the Intersection of Innovation and Investor Safeguards

The U.S. Securities and Exchange Commission (SEC) is ramping up its focus on decentralized finance (DeFi) lending platforms with a range of new regulatory actions and stakeholder outreach. Recent moves, such as a proposed legislative draft and updated enforcement strategies, underscore the agency’s pursuit of a careful balance between fostering blockchain innovation and safeguarding investors in the fast-changing crypto sector.

A revised draft bill introduced by U.S. Senators aims to clarify how the SEC and Commodity Futures Trading Commission (CFTC) oversee DeFi. The proposal provides protections for both developers and users of decentralized systems, granting exemptions for airdrops, staking incentives, and DePIN (Decentralized Physical Infrastructure Network) tokens from securities law, as long as the protocols are truly decentralized. Importantly, the bill would create a committee with SEC and CFTC members to encourage transparency and cooperative regulation. Both agencies are required to publicly address the committee’s recommendations, marking a move toward more joint oversight US Crypto Bill Draft Seeks Clarity on SEC-CFTC Roles, DeFi Rules [ 1 ].

Alongside legislative changes, the SEC is indicating a shift in its approach to DeFi oversight. Chair Paul Atkins has stressed the importance of modernized rules that can support new technologies without increasing risk. One significant recommendation is to grant certain DeFi projects conditional relief, letting emerging platforms operate with fewer regulatory hurdles in their early stages. The SEC is also considering updates to self-custody regulations and is reviewing which activities, such as proof-of-work mining and staking-as-a-service, should fall under its jurisdiction SEC Signals Shift in DeFi Regulation as Chair Atkins Proposes Conditional Relief [ 2 ]. These proposals are intended to clear up previous legal uncertainties that discouraged participation, particularly in the wake of high-profile events like the Tornado Cash case, which raised questions about holding developers criminally liable US Crypto Bill Draft Seeks Clarity on SEC-CFTC Roles, DeFi Rules [ 1 ].

The SEC has also moved forward by organizing public roundtables. At a May 2025 session, experts examined tokenization and the potential for blockchain to transform traditional financial markets. Commissioner Hester Peirce pointed out that tokenization might connect traditional finance (TradFi) with DeFi, but said that clear regulations are essential. The Task Force also rescheduled a planned June discussion called “DeFi and the American Spirit” to better incorporate public input, highlighting its flexible approach SEC.gov | SEC Announces Agenda, Panelists for Roundtable on Tokenization [ 3 ].

Industry players are responding with caution. Some see the SEC’s proposed guidance and exemptions as a move toward fairer oversight, while others highlight inconsistencies in enforcement. For example, the in

Core 30—a technical update that allows more non-financial data to be stored—has ignited debate over blockchain size and decentralization. Opponents suggest these changes could shift Bitcoin away from its original purpose as money, resulting in increased use of alternative node implementations like Bitcoin Knots, which now makes up 17% of the network.

The SEC’s changing approach signals a growing institutional focus on DeFi. Major investors and project teams have pushed for unambiguous, enforceable rules to help draw more institutional funds into the space. Still, many stress that any new policies must be applied consistently to prevent confusion in the market. As the Senate moves to finalize its 2025 legislation and reconcile it with the House’s Clarity Act, the SEC’s ability to support innovation while protecting investors will be crucial in defining the regulatory future of DeFi US Crypto Bill Draft Seeks Clarity on SEC-CFTC Roles, DeFi Rules [ 1 ].