DeFi Depth Research: Opportunities and Challenges under the SEC's New Policy

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

Decentralized Finance ( DeFi ) has rapidly developed since 2018 and has become one of the core pillars of the global cryptocurrency asset system. DeFi provides a rich set of financial functions including asset trading, lending, derivatives, stablecoins, and asset management through open and permissionless financial protocols. It technically relies on smart contracts, on-chain settlement, decentralized oracles, and governance mechanisms to achieve a deep simulation and reconstruction of traditional financial structures. After the "DeFi Summer" in 2020, the total locked value ( TVL ) of DeFi protocols once exceeded 180 billion USD, showing that the scalability and market recognition of this field have reached unprecedented heights.

However, the rapid expansion of DeFi is also accompanied by issues such as regulatory ambiguity, systemic risks, and regulatory vacuums. U.S. regulatory agencies have previously adopted a stricter and centralized enforcement strategy towards the entire cryptocurrency industry, bringing DeFi protocols, DEX platforms, DAO governance structures, and others into the realm of potential illegality. From 2022 to 2024, multiple projects have been subjected to various forms of investigation and enforcement by the SEC or CFTC. At the same time, the long-term absence of key determination criteria has led the entire DeFi industry into multiple dilemmas, including limited technological evolution, reduced capital investment, and the exodus of developers.

In the second quarter of 2025, there will be significant changes in the regulatory context. The new chairman of the SEC proposed a positive regulatory exploration path for DeFi, clarifying three policy directions: establishing an "innovation exemption mechanism" for highly decentralized protocols, promoting a "functional classification regulatory framework," and including DAO governance structures and RWA projects in the open financial regulatory sandbox. This policy shift echoes the relevant white paper from the Financial Stability Oversight Council of the U.S. Treasury, which first proposed that through regulatory sandboxes and functional testing mechanisms, investor rights can be protected while avoiding "suppressing innovation."

II. Evolution of U.S. Regulatory Path: The Transition Logic from "Presumably Illegal" to "Function Adaptation"

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

During the early rise of DeFi, the SEC's regulatory logic relied on the Howey Test securities determination framework, viewing most DeFi protocol tokens as unregistered securities. In 2021-2022, the SEC took a series of high-profile enforcement actions, adopting a broadly covering, strong crackdown, and vaguely defined strategy in the DeFi sector, which can be summarized as "assumed illegal".

However, this strategy soon faced challenges at the legislative and judicial levels. Multiple lawsuits exposed the limitations of regulatory judgments under decentralized conditions. The SEC also faces fundamental difficulties in the legal applicability of structures such as DAOs.

In this context, the SEC made a strategic adjustment at the beginning of 2025. The new chairman advocated for "technological neutrality" as the regulatory bottom line, emphasizing the design of regulatory boundaries based on functionality rather than the method of technical implementation. The SEC established a "DeFi Strategy Research Group" to build a risk classification and governance assessment system for major DeFi protocols through data modeling, protocol testing, on-chain tracking, and other means. This represents a transition towards "functionally adaptive regulation."

The SEC has not given up its claim to regulatory authority over the DeFi sector, but is attempting to build a more flexible and iterative strategy. For projects with obvious centralized components, priority is given to fulfilling registration and disclosure obligations; for highly decentralized 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 repression to institutional consultation, functional identification, and risk guidance. This shift reflects a deeper understanding of technological heterogeneity and also represents the regulatory agencies' attempt to introduce new governance paradigms in the face of an open financial system.

Three, Three Major Wealth Codes: Value Reassessment under Institutional Logic

With the implementation of the SEC's new policy, the regulatory environment in the United States has undergone a substantial shift in its attitude towards DeFi, bringing positive institutional incentives to the sector. Market participants are beginning to reassess the underlying value of DeFi protocols, and several sectors and projects that were previously suppressed in valuation by "regulatory uncertainty" are showing significant revaluation potential. From an institutional logic perspective, the current revaluation in the DeFi space mainly focuses on three directions:

First, on-chain compliant intermediaries are becoming a new value niche. The market has a structural demand for "compliant intermediary services," especially at key points such as KYC, on-chain AML, risk disclosure, and protocol governance custody. DID protocols that provide on-chain KYC services, compliance custody service providers, and front-end operation platforms with high governance transparency will gain higher policy tolerance and favor from investors. The "compliance chain" module in some Layer 2 solutions will also play a key role in this trend.

Secondly, on-chain liquidity infrastructure has regained strategic valuation support. Platforms with protocol neutrality, high composability, and governance transparency will become the preferred choice for structural capital inflows in the DeFi ecosystem. As on-chain code execution tools, underlying AMM protocols will significantly mitigate legal risks. On-chain oracles and price feed infrastructure will also become key "risk-controllable neutral nodes" in institutional-level DeFi deployments.

Once again, DeFi protocols with high endogenous yield rates and stable cash flows will enter a credit repair cycle. These protocols have the potential to become "on-chain stable cash flow carriers" due to their quantifiable, on-chain verifiable real yield models and lower operational leverage. On-chain stablecoins will build a regulatory moat against centralized stablecoins under clearer regulatory positioning.

The common logic behind these three main lines is the rebalancing process of "policy recognition dividend" transforming into "market capital pricing weight." 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 enables DeFi protocols to reconstruct the "risk premium-return model," creating institutional prerequisites for their integration into the traditional financial system.

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

After the release of the SEC's new policy, the market quickly formed an efficient positive feedback mechanism of "system expectation - capital return - asset revaluation." The most direct manifestation is the significant rebound of the total locked value (TVL) of DeFi, which is (. Within a week after the new policy was released, the DeFi TVL on the Ethereum chain rapidly jumped from 46 billion USD to 54 billion USD, with a weekly increase of over 17%. The locked value of multiple mainstream protocols increased simultaneously, and on-chain trading activity, Gas usage, DEX transaction volume, and other indicators fully rebounded.

Under the drive of capital inflow, several leading DeFi assets are experiencing price re-evaluation. Governance tokens such as UNI, AAVE, and MKR have averaged an increase of 25%-60% within a week, far exceeding the growth rates of BTC and ETH during the same period. This rebound reflects a new round of valuation modeling by the market regarding the future cash flow capacity and institutional legitimacy of DeFi protocols. The market has begun to use indicators such as protocol profit multiples, unit TVL valuation, and on-chain active user growth models for the valuation repair of DeFi protocols.

On-chain data shows that the distribution structure of funds has also changed. The number of on-chain deposit transactions, user count, and average transaction amount across multiple protocols have all seen significant increases, especially in protocols with a high degree of integration with RWA, where the proportion of institutional wallets has rapidly risen. The inflow of stablecoins into centralized exchanges has declined, while net inflows of stablecoins in DeFi protocols have begun to rebound, indicating that investor confidence in the safety of on-chain assets is recovering.

Despite the significant market response, the asset price re-evaluation is still in its preliminary stage, and the realization of institutional premiums is far from complete. The price-to-sales ratios of several leading protocols are still well below the mid-levels seen in the 2021 bull market. With the premise of maintaining real income growth, regulatory certainty will provide upward momentum for their valuation center. The re-evaluation of asset prices will also transmit to token design and distribution mechanisms, with some protocols restarting governance token buybacks, increasing the proportion of protocol surplus dividends, and promoting reforms to Staking models linked to protocol revenue.

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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 clarifies the regulatory boundaries and market operating rules, laying the foundation for the DeFi industry to move from "barbaric growth" to "compliance and order." The future development of DeFi will show the following trends:

1. Institutional reconstruction will profoundly impact the design paradigm and business model of DeFi. Protocols must be designed with a dual identity system that combines technical advantages and compliance attributes. Balancing compliance identity verification with on-chain anonymity, determining legal responsibilities for protocol governance, and establishing compliance data reporting mechanisms have become important topics.

2. The DeFi business model will diversify and deepen. Project parties will focus more on building sustainable profit models, such as protocol layer revenue sharing, asset management services, compliant bond and collateral issuance, and RWA on-chain, etc. DeFi will become an institutional financial infrastructure for on-chain asset issuance and management.

3. The institutional reconstruction of the governance mechanism will become a core driving force. Future DeFi governance may adopt a hybrid 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 will seek compliant on-chain asset allocation solutions. The insurance, credit, and derivatives markets will also experience explosive growth.

5. Technological innovation and cross-chain integration are the technical support for the institutional reconstruction of DeFi. Compliance requirements drive technological innovations in areas such as privacy protection, identity authentication, and contract security. Cross-chain protocols and Layer 2 scaling solutions will enable seamless flow between multi-chain ecosystems.

Although the institutionalization process of DeFi has opened a new chapter, challenges still exist. The stability of policy implementation, international regulatory coordination, compliance cost control, project parties' awareness of compliance and improvement of technical capabilities, user privacy protection and transparency balance, etc., are all key topics for the future. All parties in the industry need to cooperate and collaborate to promote standard setting and the establishment of self-discipline mechanisms, forming a multi-layered compliance ecosystem.

VI. Conclusion

Decentralized Finance is at a critical juncture of institutional restructuring and technological upgrade, with the SEC's new policies creating an environment of both regulation and opportunity. In the future, DeFi is expected to achieve broader financial inclusion and value reconstruction, becoming an important cornerstone of the digital economy. However, the industry still needs to continue efforts in compliance risks, technological security, and user education to truly embark on the long-term prosperous path of new wealth frontiers. With the SEC's new policies, the transition from "innovation exemption" to "on-chain finance" may lead to a comprehensive explosion, the summer of DeFi may return, and the blue-chip tokens in the DeFi sector may welcome a revaluation.