SEC's Innovation Exemption Not Meant for DeFi, Says Commissioner Peirce

Hester Peirce, an SEC commissioner, clarified that the agency's innovation exemption is not intended for decentralized finance (DeFi) applications. The exemption, announced on September 17, allows tokenized securities venues to use automated market makers and liquidity pools without being considered an exchange under U.S. securities law.

The innovation exemption will provide temporary and conditional regulatory relief to these tokenized securities venues for the next five years. Peirce emphasized that decentralized systems running through smart contracts do not need this exemption, as they already operate outside of traditional securities regulation concerns.

Pierce stated that the SEC has not predetermined whether firms using the exemption are exchanges or dealers, but will instead observe how these businesses operate before making regulatory judgments.