Decentralized Finance Depth Research: Regulatory Landscape and Value Reassessment under the SEC's New Policy

1. Introduction: The SEC's New Policies and the Key Turning Point in DeFi Regulation Framework

Decentralized Finance (DeFi) has rapidly developed since 2018, becoming one of the core pillars of the global crypto asset system. DeFi provides a rich set of financial functions including asset trading, lending, derivatives, stablecoins, and asset management through open, permissionless financial protocols, relying on smart contracts, on-chain settlement, decentralized oracles, and governance mechanisms to reconstruct traditional finance. Since the "DeFi Summer" in 2020, the total value locked (TVL) in DeFi protocols has once exceeded $180 billion, demonstrating the scalability and market recognition of this field reaching new heights.

However, the rapid expansion of DeFi is also accompanied by issues such as regulatory ambiguity, systemic risks, and a regulatory vacuum. The U.S. Securities and Exchange Commission (SEC) has previously adopted a stricter enforcement strategy towards the crypto industry, bringing DeFi protocols, DEX platforms, DAO governance structures, and others into the potential realm of violations. Between 2022 and 2024, several well-known projects were subjected to investigations and enforcement actions by the SEC or CFTC. Meanwhile, the long-term absence of criteria for assessing the degree of decentralization, public fundraising behavior, and securities trading platforms has led the DeFi industry into dilemmas like technical limitations, investment contraction, and talent loss.

In the second quarter of 2025, there will be significant changes in the regulatory landscape. The new SEC Chairman Paul Atkins proposed a proactive regulatory approach for DeFi during a congressional hearing, outlining three policy directions: first, to establish an "innovation exemption mechanism" for highly decentralized protocols; second, to promote a "functional classification regulatory framework"; and third, to include DAO governance and Real World Assets (RWA) on-chain in the regulatory sandbox. This policy shift echoes the white paper released by the U.S. Department of the Treasury's Financial Stability Oversight Council (FSOC), which for the first time suggests that innovation should be safeguarded through sandboxes and testing mechanisms to avoid "stifling innovation."

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

The evolution of the US regulation of DeFi reflects the challenges that financial compliance frameworks face in addressing emerging technologies. The current policy posture of the SEC is the result of a multi-agency game and the evolution of regulatory logic over the past five years. Understanding the foundation of this transformation requires tracing back to the regulatory attitudes during the early rise of DeFi, the feedback from major enforcement events, and the systemic tensions in the application of law.

Since 2019, the SEC's regulatory logic has mainly relied on the Howey Test securities determination framework, presuming that most DeFi protocol tokens are unregistered securities. Furthermore, any matching, clearing, or holding of digital assets may also constitute illegal activities of unregistered securities brokers. Between 2021 and 2022, the SEC took a series of high-profile enforcement actions, investigating and accusing several well-known projects, adopting a "default illegal" enforcement strategy.

However, this strategy soon faced legislative and judicial challenges. Multiple lawsuits exposed the limitations of regulatory judgment, such as the SEC v. Ripple case which weakened the stance that "all tokens are securities." At the same time, the SEC faces fundamental difficulties in the legal applicability of structures like DAOs, lacking effective enforcement tools.

In early 2025, after personnel changes, the SEC underwent a strategic adjustment. The new chairman, Paul Atkins, advocated for "technology neutrality" in regulation, emphasizing the establishment of regulatory boundaries based on function rather than technological design. The SEC established a DeFi research group to construct a risk classification and governance assessment system. This represents a transition from the logic of traditional securities law to "function-adaptive regulation," using the actual financial functions of DeFi protocols as the basis for policy design.

Overall, the regulation of DeFi in the United States is gradually evolving from early legal enforcement and law enforcement suppression to institutional consultation, functional identification, and risk guidance. This shift reflects a deeper understanding of technological heterogeneity and represents regulatory agencies' attempts to introduce new governance paradigms in the face of open financial systems. In the future, how to balance protecting investors, ensuring system stability, and promoting technological development will become the core challenge of global DeFi regulation.

III. Three Major Wealth Codes: Value Reassessment Under Institutional Logic

With the implementation of the SEC's new policy, the overall regulatory attitude towards DeFi in the United States has undergone a substantial shift, evolving from "post-event enforcement" to "proactive compliance" and then to "functional adaptation," bringing much-needed institutional positive incentives to the DeFi sector. Market participants are beginning to reassess the underlying value of DeFi protocols, and several previously suppressed valuation tracks are showing revaluation potential. From an institutional logic standpoint, the current revaluation of DeFi is concentrated in three directions:

1. Institutional premium of compliant intermediary structures: On-chain KYC services, compliant custody, and front-end operation platforms with high governance transparency will gain higher policy tolerance and investor favor. The "compliance chain" module in some Layer 2 solutions will also play a key role.

2. Strategic Position of On-Chain Liquidity Infrastructure: DEX platforms with protocol neutrality, high composability, and governance transparency will once again become the preferred choice for ecological capital inflows. The legal risks of underlying AMM protocols are expected to be greatly mitigated, and the on-chain trading depth and capital efficiency are anticipated to recover. On-chain oracle infrastructure will also become a key node for institutional-level Decentralized Finance deployments.

3. Credit Reconstruction of High Internal Yield Model Protocols: DeFi protocols with stable cash flows will enter a credit repair cycle. Lending protocols and stablecoin projects are expected to build institutional moats under clearer regulatory positioning, enhancing the attractiveness of institutional capital allocation.

The common logic behind these three main lines is the rebalancing process of "policy cognition dividend" transforming into "market capital pricing weight". After the alleviation of regulatory risks, DeFi protocols can establish a valuation anchoring mechanism aimed at institutional capital through real on-chain revenue, compliance service capabilities, and systemic participation thresholds. This not only enables DeFi protocols to reconstruct the "risk premium-return model" but also creates institutional prerequisites for their integration into the traditional financial system.

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

The SEC's new policy quickly triggered a chain reaction in the market, forming a positive feedback loop of "system expectations - capital return - asset re-evaluation." The total locked value (TVL) in DeFi significantly rebounded, with Ethereum's on-chain DeFi TVL jumping from $46 billion to $54 billion within a week, an increase of over 17%. Multiple mainstream protocols saw synchronized growth in locked value, and on-chain activity fully warmed up.

The return of funds has driven the revaluation of leading DeFi assets. Governance tokens such as UNI, AAVE, and MKR have averaged an increase of 25%-60% within a week, far exceeding the gains of BTC and ETH during the same period. The market has begun to reassess valuations based on indicators such as protocol profit multiples, TVL multiples, and user growth models.

On-chain data shows changes in the distribution structure of funds. The deposit transactions, user numbers, and average transaction amounts of multiple protocols have significantly increased, especially the proportion of institutional wallets in RWA-related protocols has rapidly risen. The inflow of stablecoins into centralized exchanges has declined, while the net inflow of stablecoins into DeFi protocols has rebounded, indicating a recovery in investor confidence in the safety of on-chain assets.

Despite the significant market response, the revaluation of asset prices is still in its early stages, and the space for institutional premium realization is far from complete. Currently, the price-to-sales ratios of several leading protocols are still far below the levels of the 2021 bull market, and regulatory certainty will provide upward momentum for their valuation center. At the same time, the revaluation of asset prices will also be transmitted to token design and distribution mechanisms, prompting protocols to further incorporate "value capture" into the market pricing logic.

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

The SEC's new policy lays the foundation for the DeFi industry to transition from "barbaric growth" to "compliance and order." The future development of DeFi will show the following trends:

1. Institutional restructuring profoundly impacts design paradigms and business models. DeFi projects need to design a dual identity system that combines technical advantages with compliance attributes to achieve a new paradigm of "embedded compliance."

2. Diversification and deepening of the business model. The project team will place greater emphasis on building sustainable profit models, such as protocol layer revenue sharing, asset management services, and RWA on-chain, forming a revenue closed loop comparable to traditional finance.

3. The reconstruction of the governance mechanism system becomes the core driving force. In the future, a hybrid governance model may be adopted, combining on-chain voting, off-chain agreements, and legal frameworks to enhance governance legitimacy and execution.

4. Transformation of Participants and Capital Structure. The entry threshold for institutional investors and traditional financial institutions has been lowered, giving rise to customized DeFi products and services aimed at institutions. The insurance, credit, and derivatives markets are expected to experience explosive growth.

5. Technological innovation and cross-chain integration become the engines of development. Innovations in privacy protection, identity authentication, and contract security accelerate, while cross-chain protocols and Layer 2 solutions promote the formation of a multi-chain integrated ecosystem.

Although the institutionalization of DeFi has opened a new chapter, challenges still exist. The industry needs to collaboratively promote the establishment of standards and the construction of self-discipline mechanisms, forming a multi-level compliance ecosystem to continuously enhance the overall level of institutionalization and market trust.

6. Conclusion

The SEC's new policy brings an environment of both regulation and opportunity for DeFi, pushing the industry from reckless growth towards compliant development. In the future, DeFi is expected to achieve broader financial inclusion and value reshaping, but continuous efforts are still needed in areas such as compliance risks, technical security, and user education. Accompanying the new regulatory policies, the shift from "innovation exemption" to "on-chain finance" may lead to a comprehensive explosion, and the summer of DeFi may reappear, with blue chip tokens in the sector expected to welcome a revaluation.