# DeFi Regulation Shifts from Congress to Agency Rulemaking SEC's incremental approach shapes DeFi compliance as legislative efforts stall. - **Source:** [CryptoCurrency – Finance Magnates | Financial and business news](https://brifing.si/source/b5a2ce51-ec8e-4702-886b-778de5971605) - **Published:** 2026-09-25 - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/133c30db-235b-4524-a4b0-1c968ce6ce4e ## Legislative setback misdirection The failed CLARITY Act vote is being misinterpreted as a crypto regulation delay. In reality, critical DeFi governance decisions around sanctions screening and risk checks were always destined for agency rulemaking rather than congressional legislation. Treasury Department, not Congress, holds primary authority over AML-type compliance measures affecting decentralized finance protocols and wallet-based access. ## SEC's piecemeal regulation strategy The SEC has abandoned comprehensive crypto frameworks in favor of narrow, conditional rules. Their August 2023 Regulation Crypto Assets proposal introduced strict caps: $5M over 4 years for early projects and $75M annually for larger raises requiring financial disclosures. This incremental approach allows regulators to study DeFi's market impact before considering broader legislation. ## Innovation Exemption constraints Two days post-CLARITY failure, the SEC introduced the Innovation Exemption for tokenized equities. It imposes trading volume limits per venue, restricts listed stocks, and mandates participant screening - all expiring after 5 years. These constraints demonstrate how the SEC intends to regulate through temporary, narrowly-scoped rules rather than permanent legislation. ## Structural compliance gap Current regulatory proposals assume DeFi can enforce rules, but only centralized exchanges currently possess compliance infrastructure. Smart contracts lack native mechanisms for transaction screening. Without developing an enforcement layer, DeFi risks becoming permissioned like traditional finance - contradicting its core decentralization ethos. ## Missing payment network equivalent Traditional finance relies on networks like Visa for compliance enforcement. DeFi lacks comparable infrastructure to verify transaction legitimacy. This structural deficiency forces either centralized intermediaries to handle authorization checks or requires building decentralized compliance protocols - neither solution currently exists at scale. ## AI's regulatory distraction effect Emerging AI technologies are diverting congressional attention from crypto regulation, likely delaying comprehensive legislation. The SEC's gradual rulemaking process will dominate DeFi governance in the interim. This regulatory vacuum pushes compliance responsibility onto individual projects rather than establishing industry-wide standards. ## Permissioned pool paradox SEC's Innovation Exemption creates legal pathways for tokenized securities but only through permissioned venues. This contradicts DeFi's open access principles. Without decentralized compliance solutions, regulated DeFi activity may concentrate in walled gardens resembling traditional financial infrastructure. ## Urgent infrastructure need DeFi must develop native compliance layers to maintain decentralization while meeting regulatory requirements. Current proposals assume enforcement capabilities that don't exist. Without building trustless screening mechanisms, the industry faces bifurcation into compliant centralized services and non-compliant truly decentralized protocols. ## Sources covering this story - https://www.financemagnates.com/cryptocurrency/defi-was-never-going-to-get-its-clarity-from-us-congress/ — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._