The SEC’s proposed “innovation exemption” would formalize its shift away from enforcement to facilitation of the crypto space

Innovating exemptions

After the SEC enacted two pivotal rulemaking frameworks for crypto products in recent months, signals from chair Paul Atkins, suggest there could be more to come—maybe even before 2025 closes out.

With Generic Listing Standards, and in-kind creation and redemption already under their belts, SEC staffers could yet find several more hefty pieces of policy work in their queues before the year’s done, judging by Atkins’ comments.

Click below, to read a concise summary and assessment of Generic Listing Standards by CF Benchmarks’ Head of Research Gabe Selby, CFA.

Crypto’s Swensen Moment: What Generic Listing Standards Mean for Product Issuers and Allocators - CFB

Crypto’s Swensen Moment: What Generic Listing Standards Mean for Product Issuers and Allocators - CFB

CFBGabriel Selby

The latest piece on the docket arises out of Atkins’ goal of modernizing “securities rules and regulations to enable America’s financial markets to move on-chain”. And the recognition that entities undertaking these innovations have often fallen foul of existing regulations.

Hence the need for an “innovation exemption” (AKA ‘conditional exemptive relief’) to enable a clearer pathway for Web3 firms, DeFi protocols, tokenization models and other “new finance” use-cases, to experiment, and ultimately, to carve out financial innovations, whether fully on-chain, or bridged to TradFi.

Such regulatory flexibility would certainly instigate a shift away from ad-hoc enforcement, and toward more structured, situation-specific rulemaking.

Wen

Atkins has indicated he’d like the rules in place by the end of the year.

The U.S. government shutdown, which ended this week after a record 43 days, may have significantly delayed near-term implementation of the new rules, particularly factoring in any backlog of work resulting from the hiatus.

Either way, below, we outline the probable shape of the rules themselves. Then we sketch out what they could mean – from our perspective as the largest provider of registered benchmarks for institutions creating regulated crypto products.

Toward a Sandbox for Digital Assets

Comments by Paul Atkins in early-October comments signaled that the Commission intends to formalize an innovation-exemption framework by year-end or early 2026, giving Web3, tokenization and DeFi projects a defined on-ramp for compliant experimentation.

The plan echoes global “regulatory sandbox” models. In certain jurisdictions, these permit firms meeting certain criteria, such as those covering transparency, decentralization and investor protection, to operate under conditional relief rather than the full registration burden.

Though Atkins stressed that guardrails for any sandbox the SEC might oversee would be “robust,” for now, details remain fluid. A Notice of Proposed Rulemaking (NPRM) is expected later in the quarter, though as indicated above, timing is uncertain.

Key questions — like what defines “sufficient decentralization,” how exemptions sunset, and whether tokenized-asset platforms are in-scope — remain open.

Key points to know

• Conditional Relief: Firms can operate under exemptive orders if they meet predefined investor-protection and transparency conditions
• Regulatory Sandbox: Time-limited pilots for DeFi, staking and tokenization projects under direct SEC oversight
• ‘Disclosure-Lite’: Simplified filings focusing on code audits, governance and validator policy, rather than full S-1s
• Exit & Transition Rules: Projects must either register fully, or wind down once the test period ends
• Cross-Agency Coordination: SEC working with the CFTC and FinCEN to continue harmonizing definitions for “digital asset” and “digital commodity”
• Investor-Protection Metrics: Mandatory risk dashboards, periodic attestations, and enhanced custody segregation

Implications

If implemented, the innovation exemption (or exemptions) could reshape where and how digital-asset projects domicile.

By lowering procedural risk, the new rules may pull tokenization ventures, staking providers and DeFi aggregators back toward U.S. soil — a reversal of a multi-year off-shoring trend.

For institutional issuers, this could eventually codify the framework required for regulated pilots of listed-fund tokenization, index-linked products, and benchmarked yield vehicles – all without full S-1 registration.

There are of course risks. The main ones voiced are that a loosely drafted ‘exemption’ could undermine investor protections; and/or create uneven competition between “sandboxed” and fully registered firms.

Possible timeline

• Nov 2025: SEC issues Notice of Proposed Rulemaking (NPRM)
• Dec 2025 – Feb 2026: 90-day comment period; joint SEC-CFTC guidance expected mid-window
• H1 2026: Pilot sandbox launches for eligible DeFi/tokenization projects
• Late 2026: Final rule adoption and transition framework for permanent exemptions

Further Reading

1. CoinDesk — “SEC Aiming to Formalize Innovation Exemption by End of Year, Chair Atkins Says”
2. FinTech Law AI — “SEC’s Innovation Exemption Could Redefine Crypto Oversight”
3. AMBCrypto — “Will the SEC’s Innovation Exemptions Change U.S. Crypto Regulations for Good?”
4. AInvest — “Regulatory Catalysts: SEC 2025 Innovation Exemptions to Reshape Crypto Investment Landscapes”
5. BeInCrypto — “SEC’s Innovation Exemption: Promise or Pitfall?”
6. CoinSpot .io — “SEC and CFTC Prepare Innovation Exemptions for the Crypto Industry by 2025”
7. CCN — “Crypto ETF Watchlist: Filings, Players, Updates (October 2025)”