In-depth Research on DeFi: SEC's New Policy Opens a New Era for On-chain Finance

I. Introduction: The Key Turning Point in SEC's New Policies and DeFi Regulation Landscape

Decentralized Finance has rapidly developed since 2018, becoming one of the core pillars of the global cryptocurrency asset system. Through open, permissionless financial protocols, DeFi provides a rich set of financial functionalities, including asset trading, lending, derivatives, stablecoins, and asset management. DeFi relies on smart contracts, on-chain settlements, decentralized oracles, and governance mechanisms at a technical level, achieving a deep simulation and reconstruction of traditional financial structures. Since the "DeFi summer" of 2020, the total locked value of DeFi protocols has once exceeded $180 billion, demonstrating that the scalability and market recognition of this field have reached unprecedented heights.

However, rapid expansion also comes with issues such as regulatory ambiguity, systemic risks, and regulatory vacuums. Under the leadership of the former chair of the U.S. Securities and Exchange Commission, U.S. regulatory agencies have adopted a stricter and centralized enforcement strategy towards the crypto industry as a whole. DeFi protocols, DEX platforms, DAO governance structures, and others have been included in the category of potential violations. Between 2022 and 2024, multiple projects were investigated and enforced by the SEC or CFTC. At the same time, the lack of criteria for determining the degree of decentralization, public financing behavior, and securities trading platforms has plunged the entire DeFi industry into difficulties.

In the second quarter of 2025, significant changes occurred in the regulatory context. In early June, the new chairman of the SEC proposed an active regulatory exploration path for DeFi during a congressional hearing, clarifying three policy directions: establishing an "innovation exemption mechanism" for highly decentralized protocols, promoting a "functional classification regulatory framework," and incorporating DAO governance structures and real asset on-chain projects into an open finance regulatory sandbox. This policy shift resonates with the white paper released by the U.S. Department of the Treasury's Financial Stability Oversight Council, which suggested that regulatory sandboxes and functional testing mechanisms should be used to protect investor rights while avoiding the suppression of innovation.

II. Evolution of the U.S. Regulatory Path: The Transformation Logic from "Default Illegal" to "Functional Adaptation"

The evolution of the regulation of DeFi in the United States reflects the process by which financial compliance frameworks respond to the challenges of emerging technologies, as well as the balance that regulatory agencies strike between "financial innovation" and "risk prevention." The current policy stance of the SEC on DeFi is the result of the interplay among various institutions and the evolution of regulatory logic over the past five years.

Since the DeFi ecosystem took shape in 2019, the core regulatory logic of the SEC relies on the securities determination framework of the Howey Test established in 1946. Under this standard, most DeFi protocol tokens are presumed to be unregistered securities, posing potential compliance risks. Moreover, any actions of matching, clearing, holding, or recommending digital assets, without explicit exemptions, may also constitute illegal activities of unregistered securities brokers or clearing agencies.

During 2021 and 2022, the SEC took a series of high-profile enforcement actions. The regulatory tone during this period can be summarized as "default illegal", meaning that project parties must prove that their protocol design does not constitute a securities transaction or is not subject to the jurisdiction of the United States, otherwise they face compliance risks.

However, this strategy of "law enforcement first, rules lagging behind" soon faced challenges. The outcomes of litigation cases exposed the limitations of regulatory judgment under decentralized conditions. At the same time, the SEC faces fundamental difficulties in the legal applicability of structures like DAOs.

In early 2025, the SEC underwent a strategic adjustment following personnel changes. The new chairman has long advocated for "technological neutrality" as the regulatory baseline, emphasizing that financial compliance should design regulatory boundaries based on function rather than the way technology is implemented. The SEC established a "DeFi Strategy Research Group" internally and co-founded a "Digital Finance Interactive Forum" with the Treasury, building a risk classification and governance assessment system for major DeFi protocols. This represents a transition from the logic of traditional securities law to "function-adaptive regulation."

The SEC has not abandoned its claim to regulatory authority over the DeFi sector, but is attempting to build a more flexible and iterative regulatory strategy. DeFi projects with obvious centralized components will be prioritized for registration and disclosure obligations; for highly decentralized, purely on-chain executed protocols, a "technical test + governance audit" exemption mechanism may be introduced.

Overall, the regulatory path for DeFi in the United States is gradually evolving from early legal enforcement and suppression to institutional consultation, functional identification, and risk guidance. This shift not only reflects a deeper understanding of the heterogeneity of technology but also represents regulatory agencies' attempts to introduce new governance paradigms when facing an open financial system.

3. Three Major Wealth Codes: Value Re-evaluation under Institutional Logic

With the implementation of new SEC regulations, the overall attitude of the U.S. regulatory environment toward DeFi has undergone a substantial shift, bringing positive institutional incentives to the DeFi sector. Market participants are beginning to reassess the underlying value of DeFi protocols, and several sectors and projects that were previously suppressed in valuation due to "regulatory uncertainty" are starting to show reassessment potential and investment value. From an institutional logic perspective, the current value reassessment in the DeFi space mainly focuses on three core directions:

1. Institutional premium of compliant intermediary structure: on-chain compliant intermediaries are becoming a new value niche. The market has generated structural demand for "compliant intermediary services," especially at key points such as identity verification, on-chain anti-money laundering, risk disclosure, and protocol governance custody. DID protocols providing on-chain KYC services, compliant custody service providers, and frontend operation platforms with high governance transparency will gain higher policy tolerance and investor preference.

2. Strategic Position of On-Chain Liquidity Infrastructure: Decentralized trading protocols serve as the underlying resource allocation engine of the DeFi ecosystem and are regaining strategic valuation support due to clearer institutional frameworks. Platforms that exhibit protocol neutrality, high composability, and governance transparency will become the preferred choice for structural capital inflows in the DeFi ecosystem. On-chain oracles and price feed infrastructure will also bear important responsibilities for system liquidity and price discovery within a compliant framework.

3. Credit Reconstruction Space of High Endogenous Yield Model Protocols: DeFi protocols with high endogenous yield rates and stable cash flows will enter a credit repair cycle after institutional pressures are released. These protocols, with quantifiable, on-chain verifiable real yield models and lower operational leverage, have the potential to become "on-chain stable cash flow carriers." Especially under the evolving trend of DeFi stablecoin models, on-chain stablecoins will build an institutional moat against centralized stablecoins.

The common logic behind these three main lines is the rebalancing process in which the "policy recognition dividend" brought about by the SEC's new policies is transformed into "market capital pricing weights". DeFi protocols can establish a valuation anchoring mechanism aimed at institutional capital through real on-chain revenue, compliance service capabilities, and systematic participation thresholds. This not only enables DeFi protocols to reconstruct the "risk premium-return model", but also means that DeFi will, for the first time, possess the credit pricing logic similar to financial enterprises.

4. Market Response: From TVL Surge to Asset Price Reevaluation

The release of the SEC's new regulatory policy quickly triggered a chain reaction in the market, forming an efficient positive feedback mechanism of "system expectations - capital return - asset revaluation." The most direct manifestation is the significant rebound in the total value locked (TVL) in DeFi. Within a week of the policy announcement, the DeFi TVL on the Ethereum blockchain rapidly surged from approximately $46 billion to nearly $54 billion, with a weekly increase of over 17%. The locked amounts of multiple mainstream protocols increased simultaneously, and indicators such as on-chain trading activity, Gas usage, and DEX transaction volume also fully revived.

With the rapid influx of funds, multiple leading DeFi assets have undergone a price reassessment. Within a week after the new policy was implemented, the prices of major DeFi governance tokens rose on average by 25% to 60%, significantly surpassing the increases of BTC and ETH during the same period. This round of price rebound reflects a new round of valuation modeling by the market regarding the future cash flow capabilities and institutional legitimacy of DeFi protocols. The market is beginning to reapply traditional financial indicators, such as protocol profit multiples, unit TVL valuations, and on-chain active user growth models, to restore valuations for DeFi protocols.

On-chain data shows that the distribution of funds is also showing a changing trend. The number of on-chain deposit transactions, user count, and average transaction amount for multiple protocols have significantly increased, especially in protocols with a high degree of integration with RWA, where the proportion of institutional wallets has rapidly risen. The inflow of stablecoins to centralized exchanges has shown a downward trend, while net inflows of stablecoins in DeFi protocols have begun to rebound, indicating that investors' confidence in the security of on-chain assets is recovering.

Despite the significant market response at present, the revaluation of asset prices is still in its preliminary stage, and the realization of institutional premiums is far from complete. Currently, the price-to-sales ratios of several leading protocols are still well below the mid-2021 bull market levels. With real income maintaining growth, regulatory certainty will provide upward momentum for their valuation center. The revaluation of asset prices will also be transmitted to token design and distribution mechanisms, such as some protocols restarting governance token buybacks, increasing protocol surplus dividend ratios, or promoting reforms of Staking models tied to protocol revenue.

5. Future Outlook: The Institutional Reconstruction of DeFi and the New Cycle

The SEC's new policy is a key turning point for the DeFi industry towards institutional restructuring and sustainable healthy development. This policy lays the foundation for DeFi to transition from the "barbaric growth" stage to a "compliant and orderly" mature market. DeFi not only faces a significant reduction in compliance risks but also welcomes a new development stage of value discovery, business innovation, and ecosystem expansion.

1. Institutional reconstruction will profoundly impact the design paradigm and business model of Decentralized Finance. Future DeFi protocols must design a dual identity system that combines technical advantages with compliance attributes, forming a new paradigm of "embedded compliance" to achieve a deep integration of technology and law.

2. The business model will become more diversified and deepened. Project parties will pay more attention to building sustainable profit models, such as through protocol layer revenue sharing, asset management services, compliant bonds and collateral issuance, and on-chain RWA, to form a revenue closed loop comparable to traditional financial assets.

3. The institutional reconstruction of the governance mechanism will become the core driving force for DeFi to enter a new cycle. Future DeFi governance may adopt a hybrid governance model, combining on-chain voting, off-chain agreements, and legal frameworks to form a transparent, compliant, and efficient decision-making system.

4. The DeFi ecosystem will welcome a richer variety of participants and a transformation of capital structures. Traditional capital such as large asset management companies, pension funds, and family offices are actively seeking compliant on-chain asset allocation solutions. The insurance, credit, and derivatives markets in a compliant environment will also experience explosive growth.

5. Technological innovation and cross-chain integration will become the technical support and development engine for the institutional reconstruction of Decentralized Finance. Compliance requirements drive technological innovations in protocols regarding privacy protection, identity authentication, and contract security. Cross-chain protocols and Layer 2 scaling solutions will enable seamless transfer of assets and information across multi-chain ecosystems.

Although the institutionalization process of DeFi has opened a new chapter, challenges still remain. The stability of policy implementation, coordination of international regulation, control of compliance costs, enhancement of the compliance awareness and technical capabilities of project parties, and the balance between user privacy protection and transparency are all key issues for the healthy development of DeFi in the future. All parties in the industry need to collaborate and cooperate to promote the establishment of standards and self-discipline mechanisms, forming a multi-layered compliance ecosystem that continuously improves the overall institutionalization level and market trust of the industry.

6. Conclusion: The New Frontier of Wealth in Decentralized Finance Has Just Begun

DeFi is at a critical juncture of institutional restructuring and technological upgrading. The SEC's new policy brings a mixed environment of regulations and opportunities, pushing the industry from reckless growth towards compliant development. In the future, as technology continues to break through and the ecosystem becomes increasingly完善, DeFi is expected to achieve broader financial inclusiveness and value reshaping, becoming an important cornerstone of the digital economy. However, the industry still needs to continue efforts in compliance risks, technological safety, and user education to truly open the long-term prosperous path of new wealth frontiers. With the SEC's new policy, from "innovation exemptions" to "on-chain finance," a comprehensive explosion may be on the horizon, and the summer of DeFi may reappear, with blue-chip tokens in the DeFi sector likely to welcome a resurgence in value.