SEC's new "test field": Can innovation exemptions before 2026 reshape the US cryptocurrency regulatory landscape

Opening: From Enforcement Dilemmas to Institutional Innovation

The US crypto industry reached a turning point in 2025. After long-term “enforcement governance” models (setting rules through litigation and fines) created numerous legal gray areas, new SEC Chair Paul Atkins launched a “Crypto Initiative” in July, centered around introducing a new regulatory framework—where innovative exemption policies became the breakthrough.

The design logic of this exemption is straightforward: provide emerging crypto technologies and products a 12-24 month “trial period,” allowing them to enter the market with minimal compliance costs, without the need to immediately follow the full registration and disclosure processes of traditional securities law. Atkins confirmed that this policy is expected to take effect officially in January 2026.

This marks a shift for US regulators from passive response to proactive shaping, attempting to find a more flexible balance between investor protection and industry innovation.

Operational Framework of the Exemption Policy: Who Can Use It, How, and for How Long

Scope and Duration Settings

The innovation exemption is not limited by company type—trading platforms, DeFi protocols, stablecoin issuers, and even DAOs can apply. The key difference is that each exemption period typically lasts 12 to 24 months, aiming to give project teams enough “incubation time” to reach “network maturity” or “full decentralization” standards.

During the exemption period, projects only need to submit simplified disclosures, completely avoiding lengthy S-1 registration procedures—similar to the “fast track” set for startups in the CLARITY Act pushed by Congress (which allows up to $75 million in annual financing but requires disclosure).

Principles-Based Compliance Standards

Rather than rigid rules, this is a flexible framework. Companies granted exemptions still need to meet basic compliance requirements:

• Periodic Reporting: Possibly requiring quarterly operational reports and SEC inspections
• Retail Investor Protection: Projects targeting retail investors must set risk warnings and investment limits
• Technical Standards: May involve whitelisting mechanisms or certified participant pools, or even adherence to standards like ERC-3643

Token Classification System and “Decentralization Testing”

The new SEC token classification system is based on the Howey test, dividing digital assets into four categories: commodities/network tokens (e.g., BTC), utility tokens, collectible tokens (NFTs), and tokenized securities.

A key innovation is the “exit mechanism”: if the first three asset types meet standards of “full decentralization” or “full functionality,” they can be exempt from securities regulation. Even if tokens are initially issued as securities, once the contractual investment relationship ends, subsequent trading is no longer considered a “security transaction.” This provides projects with a clear compliance exit.

The SEC’s stance is: most crypto assets are not securities at all, and even if they are, regulation should promote rather than hinder their development.

Legislative Coordination and Institutional Alignment

The innovation exemption is not an isolated measure but part of a coordinated approach with two major pieces of congressional legislation.

CLARITY Act: Jurisdictional Division and Transition Standards

The CLARITY Act clearly delineates the boundaries between SEC and CFTC: primary issuance and fundraising fall under SEC, while spot trading of digital commodities falls under CFTC.

Its “mature blockchain” test defines a quantitative standard for decentralization—including token ownership dispersion, governance participation, and functional independence. The exemption policy aligns with this: the exemption period is a sprint to reach “maturity,” while the CLARITY Act sets the permanent standard at the finish line.

GENIUS Act: “Independent Formation” of Stablecoins

Effective this July, the GENIUS Act is the first comprehensive federal law on digital assets in the US. It explicitly excludes payment stablecoins from the definitions of “securities” and “commodities,” instead subjecting them to banking regulators (like OCC).

Issuers must maintain 1:1 asset reserves (limited to USD cash or government bonds) and are prohibited from earning interest. With the stablecoin regulatory framework now fixed, the SEC’s innovation exemption will focus on cutting-edge areas like DeFi protocols and new network tokens, avoiding regulatory overlap.

Inter-Agency Collaboration and Unified Market Operations

SEC and CFTC have strengthened communication through joint statements and roundtable discussions, clarifying that registered exchanges can facilitate certain spot crypto asset trades, reducing jurisdictional conflicts. The innovation exemption and DeFi regulation are key topics, aiming to eliminate compliance uncertainties for market participants.

The Duality of DeFi: Opportunities and Concerns

This policy has sparked sharp divisions within the industry.

Opportunities: Cost Revolution for Startups and Compliant Projects

For startups seeking legal entry into the US, the exemption offers tangible benefits:

Significantly Lowered Barriers to Entry—Previously, a project had to spend millions on legal compliance and over a year to operate in the US. Now, the process is simplified, drastically reducing time and costs.

Activation of Institutional Investment—A clear regulatory roadmap attracts venture capital and institutional capital. Giants like JPMorgan and Morgan Stanley have long been deploying digital assets. The SEC’s previous withdrawal of SAB 121 (which forced crypto assets to be shown as liabilities in accounting) further removed barriers for banks. Coupled with the administrative flexibility of the exemption, institutions now have a clearer legal basis to enter crypto.

Testing Ground for Product Innovation—DeFi applications and Web3 models can rapidly iterate and test within the exemption framework. Companies like ConsenSys are accelerating growth in such friendly environments.

Controversies: The “Centralization Trap” in DeFi

However, the DeFi community raises critical concerns:

Mandatory KYC/AML Requirements—Exemption requires all projects to implement “reasonable user verification procedures,” meaning DeFi protocols must do KYC/AML.

Conflicts Between Smart Contracts and Compliance—To meet standards, DeFi may be forced to adopt standards like ERC-3643, embedding identity verification and transaction limits at the contract level. If every transaction requires whitelist checks, can tokens still be considered decentralized? Can they be frozen centrally? Is this still DeFi?

Industry leaders like Uniswap’s founder argue that regulating software developers as financial intermediaries will harm US competitiveness and stifle innovation.

Traditional Finance Pushback: Fear of “Regulatory Arbitrage”

Meanwhile, Wall Street opposes for entirely different reasons.

The World Federation of Exchanges ((WFE)) and Citadel Securities complain that the same asset, when tokenized versus traditional, follows different rules, creating two separate regulatory regimes—an unfair form of regulatory arbitrage.

The US Securities Industry and Financial Markets Association ((SIFMA)) advocates that tokenized securities should adhere to the same fundamental investor protection rules as traditional financial assets, or else market risks and fraud could increase.

Global Polarization: “Speed Priority” in the US vs “Rule Priority” in the EU

The US’s innovation exemption and the EU’s MiCA regulation represent two extremes of global digital asset regulation.

The US adopts a “reserved flexibility” approach—tolerating initial risks and uncertainties in exchange for speed of innovation; the EU insists on “preliminary harmonization”—everyone follows unified preset rules from the start to ensure stability.

The US model is highly attractive to startups and fintech but carries higher risks; the EU model offers predictability for large financial institutions like JPMorgan but lacks flexibility.

This divergence is forcing global firms to adopt a “dual-track compliance” strategy—the same product (e.g., stablecoins) must meet both US exemption criteria and EU’s strict standards. This is costly but necessary for market entry.

Market Outlook and Strategic Recommendations

The formal launch of the innovation exemption in 2026 marks a mature phase of US crypto regulation. It not only provides administrative flexibility but also ushers in an era of “regulatory innovation”—using administrative agility to compensate for legislative lag.

For the US crypto industry, this will attract unprecedented institutional capital, pushing digital assets from the fringe toward a “structured asset class.”

Clear advice for projects:

Treat the 12-24 month exemption as a fast track to US market entry, but the ultimate goal must be “verifiable decentralization,” not vague “ongoing efforts.” The decentralization roadmap should be clearly designed from the perspective of “power dissociation,” not empty promises. Projects that fail to achieve true decentralization in time will face high post-compliance risks.

Given the controversy over KYC/AML requirements in the exemption, projects that cannot fully decentralize technically and refuse ERC-3643 adoption should consider exiting the US retail market after the exemption ends.

Long-term, regulatory fragmentation remains the biggest challenge. The US’s flexible approach and the EU’s strict model will continue to create “regulatory arbitrage.” To achieve fair global competition and consumer protection, industry needs international coordination. By 2030, major jurisdictions may reach consensus frameworks, including unified AML/KYC standards and stablecoin reserve requirements, promoting global interoperability and institutional participation.

Conclusion: From Disorder to Order—A Watershed Moment

The SEC’s innovation exemption policy is a milestone in US regulation, shifting from “vague suppression” to “clear standards.” It uses administrative flexibility to break legislative deadlock, paving a compliant path for digital assets while maintaining regulatory principles.

For the crypto industry, this signals the end of the wild growth era. Future competition will no longer be just about code but also about asset structures and regulatory frameworks—“regulatory innovation” will be the key to the next round of competition.

Projects that master the speed advantage of exemptions, advance verifiable decentralization, and turn regulatory complexity into global competitiveness will be the true winners in the next cycle.