The new frontier of wealth in DeFi has just begun.

I. Introduction: Key Turning Point in SEC's New Policy and DeFi Regulatory Landscape

Since its rapid development beginning in 2018, Decentralized Finance (DeFi) has become one of the core pillars of the global crypto asset system. Through open and permissionless financial protocols, DeFi offers a rich array of financial functions including asset trading, lending, derivatives, stablecoins, and asset management, relying on smart contracts, on-chain settlement, decentralized oracles, and governance mechanisms to deeply simulate and reconstruct traditional financial structures. Especially since the "DeFi Summer" of 2020, the total value locked (TVL) in DeFi protocols has at one point exceeded $180 billion, marking an unprecedented height in scalability and market recognition for the field.

However, the rapid expansion of this sector has also been accompanied by issues such as regulatory ambiguity, systemic risks, and regulatory vacuums. Under the leadership of former SEC Chairman Gary Gensler, U.S. regulatory agencies have adopted a stricter and more centralized enforcement strategy towards the crypto industry, categorizing DeFi protocols, DEX platforms, DAO governance structures, and others as potentially illegal securities trading, unregistered broker-dealers, or clearing agents. From 2022 to 2024, projects such as Uniswap Labs, Coinbase, Kraken, and Balancer Labs have faced various forms of investigation and enforcement letters from the SEC or CFTC. Meanwhile, the long-standing absence of clear criteria regarding "sufficient decentralization," "public fundraising activities," and "whether it constitutes a securities trading platform" has left the entire DeFi industry mired in multiple dilemmas, including limited technological evolution, reduced capital investment, and developer exodus due to policy uncertainty.

This regulatory context saw a significant change in the second quarter of 2025. In early June, new SEC Chairman Paul Atkins proposed a proactive regulatory exploration path for DeFi at a congressional fintech hearing, outlining three policy directions: first, to establish an "Innovation Exemption" mechanism for protocols with a high degree of decentralization, temporarily deferring certain registration obligations within specific pilot scopes; second, to promote a "Functional Categorization Framework," categorizing regulatory oversight based on the business logic and on-chain operations of protocols, rather than a blanket classification as securities platforms based on "whether tokens are used"; third, to include DAO governance structures and Real World Asset (RWA) projects in an open financial regulatory sandbox, using low-risk, traceable regulatory tools to connect with rapidly developing technological prototypes. This policy shift resonates with the "Systemic Risk White Paper on Digital Assets" released by the Financial Stability Oversight Council (FSOC) of the U.S. Treasury in May of the same year, which first proposed that regulatory sandboxes and functional testing mechanisms should be used to protect investor rights while avoiding "stifling innovation."

II. Evolution of U.S. Regulatory Path: From "Presumption of Illegality" to "Functionally Adaptive Regulation"

The evolution of U.S. regulation of Decentralized Finance (DeFi) reflects both the challenges of its financial compliance framework in addressing emerging technologies and the regulatory agencies' balancing mechanism between "financial innovation" and "risk prevention." The current SEC policy stance on DeFi is not an isolated event but rather the product of a gradual evolution of regulatory logic and inter-agency negotiations over the past five years. Understanding the basis of this transformation requires tracing back to the roots of the regulatory attitude during the early rise of DeFi, the feedback loops from major enforcement events, and the systemic tensions in the application of federal and state laws.

Since the DeFi ecosystem began to take shape in 2019, the SEC's core regulatory logic has relied on the securities determination framework of the 1946 Howey Test, which states that any contract arrangement involving an investment of money, a common enterprise, an expectation of profits, and reliance on the efforts of others can be considered a securities transaction and thus subject to regulation. Under this standard, the vast majority of tokens issued by DeFi protocols (especially those with governance weight or profit-sharing capabilities) have been presumed to be unregistered securities, posing potential compliance risks. Additionally, under the Securities Exchange Act and the Investment Company Act, any activities involving the facilitation, clearing, holding, or recommending of digital assets, without a clear exemption, may also constitute illegal actions as unregistered securities brokers or clearing agencies.

During 2021 and 2022, the SEC undertook a series of high-profile enforcement actions. Representative cases include investigations into whether Uniswap Labs constituted an "unregistered securities platform operator," accusations of "illegal market promotion" against protocols like Balancer and dYdX, and even sanctions against privacy protocols like Tornado Cash by the Treasury's Office of Foreign Assets Control (OFAC), indicating that regulatory agencies adopted a broad, aggressive, and ambiguous enforcement strategy in the DeFi space. The regulatory tone during this phase can be summarized as "presumption of illegality," meaning that project teams must prove that their protocol design does not constitute a securities transaction or is not subject to U.S. jurisdiction, or else they face compliance risks.

However, this "enforcement-first, rules-lagging" regulatory strategy soon encountered challenges at the legislative and judicial levels. First, the outcomes of numerous lawsuits gradually exposed the limitations of regulatory judgments applicable under decentralized conditions. For example, a U.S. court ruled in the SEC v. Ripple case that XRP did not constitute a security in certain secondary market transactions, effectively weakening the SEC's stance that "all tokens are securities." Simultaneously, the ongoing legal disputes between Coinbase and the SEC have made "regulatory clarity" a core issue for the industry and Congress in pushing for crypto legislation. Second, the SEC faces fundamental challenges in the legal applicability of structures like DAOs. Since DAOs do not have traditional corporate identities or beneficiary centers, their on-chain autonomous mechanisms are difficult to classify under the traditional securities logic of "profits generated by the efforts of others." Consequently, regulatory agencies also lack sufficient legal tools to effectively issue subpoenas, fines, or injunctions against DAOs, leading to a dilemma in enforcement implementation.

Against this backdrop of gradually accumulating institutional consensus, the SEC underwent a strategic adjustment in early 2025 following personnel changes. New Chairman Paul Atkins has long advocated for "technological neutrality" as the regulatory baseline, emphasizing that financial compliance should design regulatory boundaries based on function rather than the means of technological implementation. Under his leadership, the SEC established a "DeFi Strategy Research Group" and co-founded a "Digital Finance Interaction Forum" with the Treasury, using data modeling, protocol testing, and on-chain tracking to build a risk classification and governance assessment system for major DeFi protocols. This technology-oriented, risk-layered regulatory approach represents a transition from traditional securities law logic to "functionally adaptive regulation," where the actual financial functions and behavioral patterns of DeFi protocols serve as the basis for policy design, thus achieving an organic combination of compliance requirements and technological flexibility.

It should be noted that the SEC has not abandoned its claim to regulatory authority over the DeFi space but is attempting to construct a more flexible and iterative regulatory strategy. For example, DeFi projects with obvious centralized components (such as front-end interface operations, multi-signature governance control, and protocol upgrade permissions) will be prioritized for registration and disclosure obligations; for highly decentralized, purely on-chain executed protocols, a "technical testing + governance audit" exemption mechanism may be introduced. Additionally, by guiding project teams to voluntarily enter regulatory sandboxes, the SEC plans to cultivate a "middle ground" for compliant DeFi ecosystems while ensuring market stability and user rights, avoiding the loss of technological innovation due to one-size-fits-all policies.

Overall, the U.S. regulatory path for DeFi is evolving from early legal over-application and enforcement suppression towards institutional negotiation, functional identification, and risk guidance. This shift not only reflects a deepening understanding of technological heterogeneity but also represents regulatory agencies' attempts to introduce new governance paradigms when facing open financial systems. In future policy implementation, achieving a dynamic balance between protecting investor interests, ensuring system stability, and promoting technological development will become a core challenge for the sustainability of DeFi regulatory systems in the U.S. and globally.

III. Three Wealth Codes: Value Reassessment Under Institutional Logic

With the formal implementation of the SEC's new regulatory policy, the overall attitude of the U.S. regulatory environment towards decentralized finance has undergone a substantial shift, transitioning from "post-enforcement" to "pre-compliance" and then to "functionally adaptive" paths, bringing much-needed institutional positive incentives to the DeFi sector. Against the backdrop of gradually clarifying the new regulatory framework, market participants are beginning to reassess the underlying value of DeFi protocols, with several previously suppressed valuations due to "compliance uncertainty" starting to show significant reassessment potential and allocation value. From an institutional logic perspective, the current value reassessment in the DeFi field mainly focuses on three core directions: the institutional premium of compliant intermediary structures, the strategic position of on-chain liquidity infrastructure, and the credit reconstruction space for high endogenous yield model protocols. These three main lines constitute the key starting point for the next round of DeFi "wealth codes."

First, as the SEC emphasizes a "function-oriented" regulatory logic and proposes to include certain front-end operations and service layer protocols in registration exemptions or regulatory sandbox testing mechanisms, on-chain compliant intermediaries are becoming a new value niche. Unlike the early DeFi ecosystem's extreme pursuit of "decentralization," there is now a structural demand for "compliant intermediary services" from both regulators and the market, especially at key nodes such as identity verification (KYC), on-chain anti-money laundering (AML), risk disclosure, and protocol governance custody. Projects with clear corporate governance structures and service licenses will become essential pathways for compliance. This trend will enable projects providing on-chain KYC services, compliant custody service providers, and front-end operating platforms with high governance transparency to gain higher policy tolerance and investor favor, thus driving their valuation systems from "technical tool attributes" to "institutional infrastructure." Notably, some rapidly developing "compliance chain" modules in certain Layer 2 solutions (such as Rollups with whitelist mechanisms) will also play a key role in the rise of this compliant intermediary structure, providing a credible execution basis for traditional financial capital's participation in DeFi.

Secondly, on-chain liquidity infrastructure, as the underlying resource allocation engine of the DeFi ecosystem, is regaining strategic valuation support due to the clarification of regulations. Liquidity aggregation platforms represented by decentralized trading protocols such as Uniswap, Curve, and Balancer have faced multiple challenges over the past year, including liquidity exhaustion, ineffective token incentives, and regulatory uncertainty. However, driven by the new policy, platforms with protocol neutrality, high composability, and governance transparency are set to become the preferred choice for structural capital inflows in the DeFi ecosystem. Particularly under the SEC's principle of "separating protocol and front-end regulation," the underlying AMM protocols, as on-chain code execution tools, will see a significant reduction in legal risks. Coupled with the continuous enrichment of bridges between Real World Assets (RWA) and on-chain assets, the depth of on-chain trading and expectations for capital efficiency are likely to experience systematic recovery. Additionally, on-chain oracles and price feed infrastructure represented by Chainlink, which do not constitute direct financial intermediaries in regulatory classifications, are becoming key "risk-controlled neutral nodes" in institutional-level DeFi deployments, taking on important responsibilities for systemic liquidity and price discovery within a compliant framework.

Furthermore, DeFi protocols with high endogenous yields and stable cash flows are expected to enter a credit recovery cycle following the release of institutional pressures, regaining the focus of risk capital. In the earlier cycles of DeFi development, lending protocols such as Compound, Aave, and MakerDAO became the credit foundation of the entire ecosystem due to their robust collateral models and liquidation mechanisms. However, with the spread of the crypto credit crisis between 2022 and 2023, the balance sheets of DeFi protocols faced liquidation pressures, with events such as stablecoin de-pegging and liquidity exhaustion becoming frequent. Coupled with concerns over asset security caused by regulatory gray areas, these protocols generally faced structural risks of weakened market trust and depressed token prices. Now, as regulatory clarity is gradually established and a systematic recognition path for protocol revenue, governance models, and auditing mechanisms is constructed, these protocols, with their quantifiable and on-chain verifiable real revenue models and lower operational leverage, possess the potential to become "on-chain stable cash flow vehicles." Especially as the DeFi stablecoin model evolves towards "multi-collateral + real asset anchoring," on-chain stablecoins represented by DAI, GHO, and sUSD will build a regulatory moat against centralized stablecoins (such as USDC and USDT) under clearer regulatory positioning, enhancing their systemic attractiveness in institutional capital allocation.

It is noteworthy that the common logic behind these three main lines is the rebalancing process of transforming the "policy recognition dividend" brought by the SEC's new policy into "market capital pricing weight." The previous DeFi valuation system heavily relied on speculative momentum and amplified expectations, lacking stable institutional moats and fundamental support, which led to strong vulnerabilities during market downturns. Now, with regulatory risks alleviated and legal pathways confirmed, DeFi protocols can establish valuation anchoring mechanisms aimed at institutional capital through real on-chain revenue, compliance service capabilities, and systematic participation thresholds. The establishment of this mechanism not only enables DeFi protocols to reconstruct the "risk premium-return model" but also signifies that DeFi will, for the first time, possess a credit pricing logic akin to financial enterprises, creating institutional prerequisites for its integration into the traditional financial system, RWA connection channels, and on-chain bond issuance.

IV. Market Response: From TVL Surge to Asset Price Revaluation

The release of the SEC's new regulatory policy not only sends a positive signal for the cautious acceptance and functional regulation of the DeFi sector at the policy level but also quickly triggers a chain reaction in the market, forming an efficient positive feedback mechanism of "institutional expectations—capital return—asset revaluation." The most direct manifestation is the significant rebound in the total value locked (TVL) in DeFi. Within a week of the new policy announcement, according to mainstream data platforms like DefiLlama, the DeFi TVL on the Ethereum chain rapidly jumped from approximately $46 billion to nearly $54 billion, with a weekly increase of over 17%, marking the largest weekly increase since the FTX crisis in 2022. Meanwhile, the locked amounts of several mainstream protocols such as Uniswap, Aave, Lido, and Synthetix also increased simultaneously, with indicators such as on-chain trading activity, Gas usage, and DEX transaction volumes all showing a comprehensive recovery. This broad market response indicates that the clear signals from the regulatory authorities have effectively alleviated institutional and retail investors' concerns about potential legal risks in DeFi in the short term, thereby driving off-market capital to re-enter the sector and forming a structural influx of liquidity.

Driven by the rapid return of capital, several leading DeFi assets have experienced price revaluation. For example, governance tokens such as UNI, AAVE, and MKR saw their prices rise by an average of 25% to 60% within a week of the new policy's implementation, far exceeding the increases in BTC and ETH during the same period. This price rebound is not merely driven by sentiment but reflects a new round of valuation modeling by the market regarding the future cash flow capabilities and institutional legitimacy of DeFi protocols. Previously, due to compliance uncertainties, the valuation system of DeFi governance tokens was often assigned significant discounts by the market, with the protocols' real revenue, governance rights value, and future growth potential not effectively reflected in their market capitalization. However, now, as the institutional path becomes clearer and operational legality gains policy tolerance, the market is beginning to reassess DeFi protocols using traditional financial metrics such as protocol profit multiples (P/E), unit TVL valuations (TVL multiples), and on-chain active user growth models. The return of this valuation methodology not only enhances the investment appeal of DeFi assets as "cash flow-like assets" but also signifies that the DeFi market is beginning to evolve towards a more mature and quantifiable capital pricing stage.

Moreover, on-chain data also shows a trend of change in the distribution structure of capital. Following the release of the new policy, the number of on-chain deposit transactions, user counts, and average transaction amounts for several protocols have significantly increased, particularly in protocols with high integration with RWA (such as Maple Finance, Ondo Finance, and Centrifuge), where the proportion of institutional wallets has rapidly risen. For instance, Ondo's short-term U.S. Treasury token OUSG has seen its issuance scale grow by over 40% since the new policy was announced, indicating that some institutional funds seeking compliance pathways are leveraging DeFi platforms to allocate on-chain fixed-income-like assets. Meanwhile, the inflow of stablecoins into centralized exchanges has shown a downward trend, while net inflows of stablecoins in DeFi protocols have begun to recover, indicating that investor confidence in the security of on-chain assets is being restored. The trend of the decentralized financial system regaining capital pricing power is beginning to emerge, with TVL no longer merely a short-term flow indicator of speculative behavior but gradually transforming into a barometer of asset allocation and capital trust.

It is important to note that although the current market response is significant, the revaluation of asset prices is still in its early stages, and the realization of institutional premiums is far from complete. Compared to traditional financial assets, DeFi protocols still face high regulatory trial-and-error costs, governance efficiency issues, and challenges in auditing on-chain data, leading the market to maintain a certain level of caution even as risk preferences shift. However, this resonance of "institutional risk contraction + value expectation recovery" opens up space for the mid-term market of the DeFi sector to experience valuation re-expansion. Currently, the P/S (price-to-sales ratio) of several leading protocols remains well below the mid-levels seen during the 2021 bull market, and with real revenue continuing to grow, regulatory certainty will provide upward momentum for their valuation centers. At the same time, the revaluation of asset prices will also transmit to token design and distribution mechanisms, with some protocols restarting governance token buybacks, increasing the proportion of protocol surplus dividends, or promoting reforms to staking models linked to protocol revenue, further incorporating "value capture" into market pricing logic.

V. Future Outlook: Institutional Reconstruction and New Cycles in DeFi

Looking ahead, the SEC's new policy is not only a regulatory adjustment at the compliance level but also a key turning point for the DeFi industry towards institutional reconstruction and sustainable healthy development. This policy clarifies regulatory boundaries and market operating rules, laying the foundation for the DeFi industry to transition from a phase of "barbaric growth" to a "compliant and orderly" mature market. Against this backdrop, DeFi not only faces a significant reduction in compliance risks but also welcomes a new development stage of value discovery, business innovation, and ecosystem expansion.

First, from an institutional logic perspective, the institutional reconstruction of DeFi will profoundly impact its design paradigms and business models. Traditional DeFi protocols often emphasize "code as law" automated execution, with little consideration for compatibility with real legal systems, leading to potential legal gray areas and operational risks. The SEC's new policy, through the clarification and refinement of compliance requirements, compels DeFi projects to design dual identity systems that combine technical advantages with compliance attributes. For example, balancing compliance identity verification (KYC/AML) with on-chain anonymity, clarifying legal responsibilities in protocol governance, and establishing compliant data reporting mechanisms have all become important topics for future DeFi protocol design. By embedding compliance mechanisms into smart contracts and governance frameworks, DeFi will gradually form a new paradigm of "embedded compliance," achieving deep integration of technology and law, thereby reducing uncertainties and potential penalties arising from regulatory conflicts.

Second, institutional reconstruction will inevitably drive the diversification and deepening of DeFi business models. In the past, the DeFi ecosystem overly relied on short-term incentives such as liquidity mining and transaction fees, making it difficult to sustainably generate stable cash flows and profitability. Under the guidance of the new policy, project teams will place greater emphasis on building sustainable profit models, such as through protocol-level revenue sharing, asset management services, compliant bond and collateral issuance, and on-chain RWA, gradually forming a revenue loop comparable to traditional financial assets. Particularly in terms of RWA integration, compliance signals have greatly enhanced institutional trust in DeFi products, allowing for the entry of diverse asset types, including supply chain finance, real estate asset securitization, and bill financing, into the on-chain ecosystem. In the future, DeFi will no longer be merely a decentralized trading venue but will become an institutional financial infrastructure for on-chain asset issuance and management.

Third, the institutional reconstruction of governance mechanisms will also become a core driving force for DeFi to enter a new cycle. In the past, DeFi governance often relied on token voting, leading to issues such as excessive decentralization of governance power, low voting rates, and inefficient governance, while lacking connections to traditional legal systems. The governance norms proposed by the SEC's new policy encourage protocol designers to explore governance frameworks with greater legal efficacy, such as through the registration of DAO legal identities, legal confirmation of governance actions, and the introduction of multi-party compliance supervision mechanisms to enhance the legitimacy and enforceability of governance. Future DeFi governance may adopt a hybrid governance model, combining on-chain voting, off-chain protocols, and legal frameworks to form a transparent, compliant, and efficient decision-making system. This will not only help alleviate risks of power concentration and manipulation during governance processes but also enhance the protocol's trust with external regulatory agencies and investors, becoming an important cornerstone for the sustainable development of DeFi.

IV. With the improvement of compliance and governance systems, the DeFi ecosystem will welcome a richer array of participants and a transformation of capital structures. The new policy significantly lowers the barriers for institutional investors and traditional financial institutions to enter DeFi. Large asset management companies, pension funds, family offices, and other traditional capital are actively seeking compliant on-chain asset allocation solutions, which will give rise to more customized DeFi products and services aimed at institutions. At the same time, the insurance, credit, and derivatives markets under a compliant environment will also experience explosive growth, promoting comprehensive coverage of on-chain financial services. Additionally, project teams will optimize token economic models, reinforcing the inherent rationale of tokens as governance tools and value carriers, attracting long-term holding and value investment, reducing short-term speculative volatility, and injecting sustained momentum into the stable development of the ecosystem.

V. Technological innovation and cross-chain integration are the technical support and development engines for the institutional reconstruction of DeFi. Compliance demands drive technological innovations in protocols regarding privacy protection, identity verification, and contract security, leading to the widespread application of privacy protection technologies such as zero-knowledge proofs, homomorphic encryption, and multi-party computation. Meanwhile, cross-chain protocols and Layer 2 scaling solutions will enable seamless flow of assets and information across multi-chain ecosystems, breaking the on-chain island effect and enhancing the overall liquidity and user experience of DeFi. In the future, a multi-chain integrated ecosystem under a compliant foundation will provide a solid basis for business innovation in DeFi, promoting deep integration of DeFi with the traditional financial system and achieving a new form of "on-chain + off-chain" hybrid finance.

Finally, it is worth noting that while the institutionalization process of DeFi has opened a new chapter, challenges still exist. The stability of policy implementation, international regulatory coordination, control of compliance costs, enhancement of project teams' compliance awareness and technical capabilities, and the balance between user privacy protection and transparency are all key issues for the healthy development of DeFi in the future. All parties in the industry need to collaborate to promote standard-setting and the establishment of self-regulatory mechanisms, leveraging industry alliances and third-party auditing institutions to form a multi-layered compliance ecosystem, continuously improving the overall institutionalization level and market trust of the industry.

VI. Conclusion: The New Frontier of Wealth in DeFi Has Just Begun

As the forefront of blockchain financial innovation, DeFi is at a critical juncture of institutional reconstruction and technological upgrade. The SEC's new policy brings an environment of both regulation and opportunity, pushing the industry from barbaric growth towards compliant development. In the future, as technology continues to break through and the ecosystem becomes increasingly refined, DeFi is expected to achieve broader financial inclusion and value reshaping, becoming an important cornerstone of the digital economy. However, the industry still needs to make continuous efforts in compliance risks, technological security, and user education to truly embark on the long-term prosperous path of the new frontier of wealth. With the SEC's new policy, the transition from "innovation exemption" to "on-chain finance" may lead to a comprehensive explosion, and the summer of DeFi may re-emerge, with blue-chip tokens in the DeFi sector likely to undergo value revaluation.

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