Can the SEC's "innovation exemption" really bring a new spring to the crypto industry?

Original authors: Umbrella, Deep Tide TechFlow

On December 2, SEC Chairman Paul Atkins stated in a speech at the NYSE that the innovation exemption rule for cryptocurrency companies will officially take effect in January 2026.

The new innovation exemption rules for cryptocurrency companies can be traced back to the Project Crypto plan in July of this year, but it was forced to be shelved due to the government shutdown. Now it has been mentioned again and confirmed to be implemented, which has aroused a lot of attention and discussion in the market.

However, can this much-anticipated policy truly bring a new spring to the crypto industry?

Core content of the new innovation exemption rules

According to the detailed rules published by the SEC, the innovation exemption mainly includes the following three key factors.

First, regarding the scope of the exemption: Any entity that develops or operates a business related to crypto assets can apply, including trading platforms, DeFi protocols, stablecoin issuers, and even DAO organizations.

The innovation exemption period is 12-24 months, during which projects only need to submit simplified information disclosures instead of the full S-1 registration documents.

Secondly, there are compliance requirements. Although exempted, projects still need to meet basic compliance standards, such as implementing KYC/AML procedures, submitting quarterly operational reports, and accepting regular reviews by the SEC.

For projects involving retail investors, investor protection mechanisms must be established, including risk warnings and investment limits.

Finally, there's the token classification standard. In this innovation exemption, the SEC categorizes digital assets into four types: commodity (such as BTC), utility (utility tokens), collectible (NFTs), and tokenized security.

The first three categories can be removed from the securities regulatory framework after meeting the conditions of "full decentralization" or "full functionality".

dissenting voices

The policy requires all projects participating in the exemption to implement a "reasonable user verification process," a proposition that directly conflicts with the decentralized principles of the crypto industry and has sparked considerable controversy within the DeFi community.

Under the new regulations, DeFi protocols are required to divide liquidity pools into two categories: permissioned pools for compliant investors and public pools for all users.

Permissioned pools enjoy more relaxed regulation, but the identity of each participant must be verified. Such requirements undoubtedly "traditionalize" crypto finance.

What is even more worrying is the requirement for technical modifications.

The SEC recommends that DeFi projects adopt compliant token standards such as ERC-3643, which embed authentication and transfer restriction functions into smart contracts.

If every transaction requires checking a whitelist, and tokens can be frozen by centralized entities, is DeFi still the DeFi we know?

This requirement also contradicts the previous stance of Uniswap founder Hayden Adams against mandatory real-name registration.

Even if compliance requirements are accepted, the policy still faces considerable uncertainty in its implementation.

The SEC has not provided a clear quantitative standard for policies that allow for relaxed regulation through full decentralization, and no one knows whether this standard is based on factors such as the number of nodes or the distribution of tokens.

This uncertainty gives regulators a great deal of discretion, but it also brings uncertainty to project owners.

Another issue is the arrangements after the exemption period ends.

No later than 24 months later, these exempted projects must either complete registration or prove that they have fully achieved "decentralization." But if the SEC determines that a project still does not meet the standards by then, will all previous operations be retroactively reviewed?

The World Federation of Exchanges (WFE) raised another question: Why should crypto assets enjoy special treatment? If every emerging industry demands regulatory exemptions, the fairness and consistency of the entire regulatory system will be challenged.

Image: WFE's letter to the SEC: "Re: SEC Crypto Task Force"

Potential positive impacts

Despite the numerous controversies, the innovation exemption policy has indeed brought some positive changes to the crypto industry, and the community generally believes that this is a major positive development for the crypto industry.

Image: Tweet from blogger @qinbafrank

In terms of policy, the most direct impact is the reduction of compliance costs.

Previously, for a crypto project to operate compliantly in the United States, it required millions of dollars in legal fees and more than a year of processing. Now, through the exemption mechanism, projects can start operating first and gradually improve their compliance system in practice. This is a significant benefit for startups with limited funds.

In addition, it has gained more room for technological innovation.

A range of new crypto concepts have been given the opportunity to be tested under the new exemption framework, especially in the field of stablecoins, which has been popular this year. With the support of supporting legislation, higher regulatory standards are expected to be established, which is of great significance to the entire payment system.

The compliant survival space of projects in the United States

In the past few years, many crypto projects that were originally based in the United States have chosen to "leave". Ripple moved some of its business to Singapore, Coinbase once considered listing overseas, and many early teams simply registered in the Cayman Islands or the British Virgin Islands from Day 1, deliberately bypassing the US market.

The core reason for this exodus is not that regulations are too strict, but rather that regulations are too vague. The SEC's enforcement-as-regulation model leaves project teams bewildered; compliance issues today could lead to a Wells Notice tomorrow. Rather than gambling, they choose to leave.

The innovation exemption policy has changed this at least in form: projects can get a 12-24 month "safe period" to operate within a clear framework, instead of living in a gray area with fear.

This certainly lowers the barrier to entry for teams that already want to do compliant business and serve American users.

However, it's important to be realistic: this is not the same as "the return of talent to the crypto industry".

The global talent drain in the crypto market is largely due to a crisis of trust within the industry itself. Conversely, if chaos erupts during the exemption period, it could accelerate the further exodus of talent.

So a more accurate statement would be: this policy opens a window for projects that want to operate compliantly in the United States, but it neither can nor intends to solve the fundamental problems of the crypto industry.

Conclusion

The SEC's latest innovation exemption policy represents a significant shift in the US approach to crypto regulation. It attempts to find a middle ground between a "total ban" and "laissez-faire," a path that may not be perfect and is fraught with compromises and contradictions, but at least it offers the industry the possibility of moving forward.

Whether the policy will succeed depends on many factors, such as the SEC's enforcement standards, the level of self-discipline among project teams, and technological development. If all parties can find a balance, 2026 could become a new starting point for the development of the crypto industry.

And now, the door to exploration has just been opened.