tl;dr
The SEC aims to formalize an 'innovation exemption' for digital assets by 2025, shifting from enforcement to fostering crypto innovation amid government shutdown challenges.
**SEC Aims to Formalize "Innovation Exemption" for Digital Assets by Year-End**
NEW YORK — The U.S. Securities and Exchange Commission (SEC) is poised to take a significant step toward fostering innovation in digital assets and emerging technologies, with plans to formalize an "innovation exemption" as early as the end of 2025 or the first quarter of 2026, according to SEC Chair Paul Atkins.
At a recent event hosted by Katten Muchin Rosenman LLP, Atkins emphasized that cryptocurrency and digital innovation have become the agency’s top priority, signaling a shift toward a more proactive regulatory approach. "Crypto is job one," he stated, highlighting the SEC’s evolving role as a pro-innovation body aiming to attract developers and entrepreneurs to the U.S. market.
**Navigating the Shutdown and Regulatory Challenges**
Atkins acknowledged that the ongoing U.S. government shutdown has "hamstrung" the SEC’s ability to advance rulemaking, including efforts to establish the innovation exemption. Despite this, he expressed confidence in the agency’s ability to finalize the exemption by year-end or early next year, depending on the resolution of the shutdown.
The proposed exemption seeks to move the SEC away from its previous reliance on enforcement actions and informal guidance, instead creating a formal framework to support innovation. "We want to be welcoming to innovators and have them feel like they can do something here in the U.S. so they don’t have to flee to foreign jurisdictions," Atkins said during a panel discussion with former SEC Commissioner Troy Paredes.
**A Shift From Repression to Encouragement**
Atkins criticized the past four years of "repression" in the crypto sector, which he argued has driven innovation overseas. "The result has been pushing things abroad, rather than having innovation being done here," he remarked. The SEC’s new approach, he said, is designed to reverse this trend by providing clarity and regulatory support for companies working with digital assets.
**Legislative Developments and Market Structure**
While the SEC focuses on rulemaking, Atkins praised Congress for advancing legislation addressing cryptocurrencies, particularly the stablecoin-focused GENIUS Act. However, he noted the SEC’s limited role in the bill, which centers on market structure issues.
Panelists at the event offered mixed assessments of the bill’s prospects. Summer Mersinger, CEO of the Blockchain Association, gave it a 51% chance of passing this year, while others, like CoinFund’s Chris Perkins, were less optimistic. Greg Xethalis of Multicoin Capital urged lawmakers to continue their efforts, emphasizing the importance of legislative clarity for the sector.
**Stablecoins and the Path Forward**
The GENIUS Act, the first major crypto-focused legislation in the U.S., has already begun to yield results. The Treasury Department has proposed rules for stablecoins, and experts anticipate a surge in adoption. Xethalis predicted a "Cambrian explosion" of stablecoin usage, citing examples like Visa’s integration of USDC into its payment tools.
Mersinger highlighted potential growth in stablecoin applications, including their use in fund transfers and financial contracts. As regulatory frameworks solidify, the industry appears poised for broader adoption, with innovators eager to leverage these tools in everyday financial systems.
**Looking Ahead**
As the SEC works to finalize its innovation exemption, the broader crypto landscape remains dynamic. With legislative efforts and regulatory clarity advancing, the U.S. aims to reestablish itself as a hub for digital innovation—provided the government shutdown does not further delay critical rulemaking. For now, the focus remains on balancing innovation with investor protection, ensuring the U.S. remains competitive in the global digital economy.