The U.S. Securities and Exchange Commission is preparing to codify an “innovation exemption” that could give crypto and fintech startups room to operate under formal regulatory supervision, according to remarks from Chair Paul Atkins made Tuesday.
Chair Atkins recounted how the crypto industry had faced “four years, at least” of “repression” that had resulted in “pushing things abroad, rather than having innovation being done.”
Atkins was referring to what Republicans and crypto advocates have previously labeled as "regulation by enforcement" under the previous Biden administration, specifically during the tenure of former SEC Chair Gary Gensler.
The remarks were first reported by CoinDesk. A copy of the proceedings from the Futures & Derivatives Law Report event hosted by Katten Muchin Rosenman LLP was requested and acknowledged, but had not been received at the time of writing. Decrypt reached out to the SEC for comment.
Expected before year-end, the move marks the agency’s most direct effort yet to replace ad hoc enforcement with a defined framework for experimental financial technologies, which includes new developments in applications for cryptocurrencies, blockchains, and other decentralized finance verticals.
Earlier in June, Atkins had directed SEC staff to explore what he called a “conditional exemptive relief framework, or innovation exemption,” aimed at letting on-chain financial projects operate under temporary, supervised conditions while broader rulemaking takes shape. Ethereum governance tokens spiked on the news.
Late last month, Atkins confirmed that the agency was moving ahead with plans to formalize the plan, reiterating his earlier direction for staff to design a conditional relief framework.
Atkins said at the time the proposal could be finalized by year-end as part of a broader effort to create clearer pathways for compliant innovation.
The exemptions would allow a slew of decentralized projects and platforms to “test their ideas without burning millions on lawyers first,” while giving regulators “a front-row seat to see how this stuff actually works,” Wendy Fu, CEO and founder of Sui-based DEX Momentum Finance, told Decrypt.
Yet the SEC’s gesture “only matters if the rules actually fit how crypto systems function,” she added. “Otherwise it's just regulatory theater that sounds good but stays impossibly expensive to navigate.”
The SEC chair’s remarks reflect growing optimism among industry observers that the SEC is moving in earnest, from enforcement to engagement on digital asset regulation.
Bridging the gap
Given the alignment, the SEC’s efforts “could finally bridge the gap between innovation and regulation in the U.S. market,” Jakob Kronbichler, CEO and co-founder of on-chain credit marketplace Clearpool, told Decrypt.
Crypto projects have “faced uncertainty“ for years because “there was no defined path to experiment under regulatory oversight,” Kronbichler said, adding that a formalized exemption at this level shows that “innovation can coexist with investor protection, and is critical for long-term competitiveness.”
Despite the previous diaspora of crypto firms, the SEC is now trying to “bring real innovation back onshore” and encourage global collaboration around standards, he added.
If implemented well, the exemptions could “lower the barrier to responsible experimentation,” Kronbichler said, noting how many “compliant-minded firms” were driven to build outside the U.S. “simply because the rules were unclear.”
“A supervised framework for innovation would allow companies to test new models in areas such as DeFi, tokenization, or payments without the fear of retroactive enforcement,” he said.
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