SEC’s Peirce Says ‘Innovation Exemption’ Is for Tokenized Securities Trading, Not DeFi

Hester Peirce, a commissioner at the U.S. Securities and Exchange Commission, said on Sept. 17 that the agency’s newly announced “innovation exemption” does not apply to decentralized finance, or DeFi.

BlockBeats and other outlets reported on Sept. 17 that Peirce said in a statement the exemption is a temporary, conditional form of regulatory relief available only to tokenized securities venues, or TSVs.

The SEC announced the measure the same day, allowing TSVs to use automated market makers, or AMMs, and liquidity pools to trade tokenized securities. Platforms relying on the innovation exemption will be exempt for the next five years from the definition of an “exchange” under U.S. securities law, along with certain related registration requirements.

Peirce also emphasized that the SEC has not predetermined that firms using the exemption are exchanges or dealers. Instead, the agency plans to observe which businesses use the framework and how they operate before making regulatory judgments.

She added that the measure is not intended for DeFi. Decentralized systems run by automated software raise different issues from the traditional concerns of securities regulation, which focus on the risk that trusted intermediaries may act negligently or be vulnerable to external attacks.

Peirce said decentralized systems that allow users to transact directly with one another through smart contracts, without separate permission, do not need an innovation exemption in the first place.