SEC Commissioner Hester Peirce: Innovation Exemption Not Related to Decentralized Finance
U.S. SEC Commissioner Hester M. Peirce stated regarding the committee's innovation exemption order that the exemption is not related to decentralized finance. Truly decentralized systems driven by automated software do not raise the fundamental concerns that securities regulation is based on, namely that trusted intermediaries may be foolish, negligent, or compromised; investors using intermediated peer-to-peer transactions with permissionless smart contracts do not require an exemption.
The order targets a new category called "Tokenized Securities Venues" (TSV): providing automated market maker liquidity pools and setting participant admission standards for on-chain trading of stocks listed on major U.S. exchanges. Entities providing liquidity to TSVs may obtain exemptions as defined by dealers; issuers who do not wish their securities to trade here can opt out. The exemption is time-limited, conditional, and aligns with the Trading and Markets Division's April statement regarding the trading interface for crypto asset securities.
Peirce stated that the commission does not presume that entities relying on this exemption constitute exchanges or dealers, and will first observe who is using it and how before reaching regulatory conclusions. The commission is open to other on-chain trading models, and some models may not need an exemption if they can meet current requirements of the Securities Exchange Act. TSV is merely a licensed on-chain trading model, not a blanket license for all on-chain securities.
From a market mechanism perspective, this separates the regulatory supply of "tokenized stock pools requiring intermediaries" from "permissionless peer-to-peer contracts." Beneficiaries are licensed or quasi-licensed venues willing to meet standards for notifications, transparency, downtime coordination, ledgers, and technical safeguards; pressured parties are projects hoping for an exemption to cover permissionless agreements. Funds will not flow into public chain spot due to the declaration but will test which stock codes are allowed into capped AMM pools.
Source: Public Information
ABAB AI Insight
Peirce has long framed securities law as regulating intermediary behavior, regardless of code publication. This exemption turns automated market makers into observable sandboxes while excluding permissionless contracts from the sandbox—exclusion is protection, not neglect: not needing an exemption means not being classified as an exchange first. TSV must set admission standards, be stoppable, and be statistically analyzable, which are characteristics of intermediaries, hence the need for temporary relief from the exchange definition.
The capital path is to first use NMS stocks for on-chain experiments, then decide whether to rewrite the definitions into the rules. Stocks already have disclosure and limit price mechanisms, and the cost of failure is lower than creating a new legal framework for native tokens. The option for issuers to opt out indicates that on-chain venues remain an additional market, not a replacement for the main market of SIP and exchanges. In parallel with the 24-hour trading roundtable on the same day, one changes the clock, the other changes the ledger.
The analogy is that ATS once served as a safety valve for exchange definitions, with sandbox regulation in the UK granting fintech limited-time licenses: regulation first collects who comes in, then decides whether the door should be widened. The industry is in a design phase separating licensed on-chain venues from permissionless agreements.
Structural judgment belongs to regulatory changes. The mechanism is that concerns arise from trustees who can be compromised; if software automatically matches without accountable trustees, it does not enter the same registration framework; once someone sets admission and operates a pool, trustees reappear, and the exemption activates. The naming rights lie with "venue" rather than "agreement," determining who must queue for orders and who can continue to only publish contracts.
ABAB News · Cognitive Laws
- No accountable intermediaries means no exemption prepared for intermediaries.
- The sandbox observes those who enter, not the agreements outside the door.
- Models that can comply with current laws are often cheaper than exemptions.