I. Introduction: SEC's New Policy and the Critical Turning Point in DeFi Regulation
Decentralized Finance (DeFi) has become a core pillar of the global crypto asset system since 2018. Through open, permissionless financial protocols, DeFi provides rich financial functions including asset trading, lending, derivatives, stablecoins, and asset management, technically relying on smart contracts, on-chain settlement, decentralized oracles, and governance mechanisms to deeply simulate and reconstruct traditional financial structures. Especially since the "DeFi Summer" of 2020, the total value locked (TVL) of DeFi protocols once exceeded $180 billion, marking an unprecedented height of scalability and market recognition.
However, this rapid expansion has been continuously accompanied by issues of regulatory ambiguity, systemic risks, and regulatory vacuum. Under the leadership of former SEC Chairman Gary Gensler, U.S. regulatory authorities adopted a strict, centralized enforcement strategy towards the crypto industry, with DeFi protocols, DEX platforms, and DAO governance structures being included in potential violations such as unregistered securities trading, unregistered brokers, or clearing agents. From 2022 to 2024, projects like Uniswap Labs, Coinbase, Kraken, and Balancer Labs faced various investigations and enforcement letters from the SEC or CFTC. Meanwhile, the long-standing lack of criteria for determining "sufficient decentralization", "public financing activities", and "whether it constitutes a securities trading platform" has trapped the entire DeFi industry in multiple difficulties, including limited technological evolution, capital investment contraction, and developer exodus.
This regulatory context underwent a significant change in the second quarter of 2025. In early June, the new SEC Chairman Paul Atkins first proposed a positive regulatory exploration path for DeFi at a congressional financial technology hearing, clearly outlining three policy directions: first, establishing an "Innovation Exemption" for protocols with high degrees of decentralization, temporarily suspending certain registration obligations within specific pilot ranges; second, promoting a "Functional Categorization Framework" to regulate based on the protocol's business logic and on-chain operations, rather than categorically determining securities platforms by "token usage"; third, incorporating DAO governance structures and Real World Asset (RWA) projects into an open financial regulatory sandbox to interface with rapidly developing technological prototypes through low-risk, traceable regulatory tools. This policy shift echoes the Digital Asset Systemic Risk White Paper published by the Financial Stability Oversight Council (FSOC) in May of the same year, which first proposed using regulatory sandboxes and functional testing mechanisms to protect investor rights while avoiding "stifling innovation".
[The translation continues in the same manner for the remaining text, maintaining the specified translations for technical terms and proper nouns.]III. Three Wealth Codes: Value Reassessment Under Institutional Logic
With the formal implementation of SEC's new regulatory policies, the overall attitude of U.S. regulation towards decentralized finance has undergone a substantial transformation, transitioning from "post-facto enforcement" to "proactive compliance" and then to "functional adaptation", bringing long-awaited positive institutional incentives to the DeFi sector. Against the backdrop of gradually clarifying new regulatory frameworks, market participants have begun to re-evaluate the underlying value of DeFi protocols, with multiple tracks and projects previously suppressed by "compliance uncertainty" now showing significant re-evaluation potential and allocation value. From an institutional logic perspective, the current value reassessment mainline in the DeFi field is primarily concentrated in three core directions: institutional premium of compliant intermediary structures, strategic positioning of on-chain liquidity infrastructure, and credit reconstruction space for high endogenous yield model protocols - these three lines constitute the key starting point for the next DeFi "wealth code".
First, with SEC emphasizing a "function-oriented" regulatory logic and proposing registration exemption or regulatory sandbox testing mechanisms for certain front-end operational and service layer protocols, compliant on-chain intermediaries are becoming a new value basin. Unlike the early DeFi ecosystem's extreme pursuit of "disintermediation", current regulation and market have generated structural demand for "compliant intermediary services", especially at critical nodes such as identity verification (KYC), on-chain anti-money laundering (AML), risk disclosure, and protocol governance custody. Projects with clear legal governance frameworks and service licenses will become the necessary passage for compliance pathways. This trend will grant higher policy tolerance and investor preference to DID protocols providing on-chain KYC services, compliance custody service providers, and front-end operating platforms with high governance transparency, thereby driving their valuation system's transformation from "technical tool attributes" to "institutional infrastructure". Notably, the rapidly developing "compliant chain" modules in some Layer 2 solutions (such as Rollup with whitelist mechanisms) will also play a crucial role in this compliant intermediary structure's emergence, providing a credible execution foundation for traditional financial capital to participate in DeFi.
Second, on-chain liquidity infrastructure, as the underlying resource allocation engine of the DeFi ecosystem, is regaining strategic valuation support due to institutional clarification. Liquidity aggregation platforms represented by decentralized trading protocols like Uniswap, Curve, and Balancer, though facing multiple challenges such as liquidity depletion, token incentive failure, and regulatory uncertainty in the past year, will become the preferred platform for structural fund inflows into the DeFi ecosystem under the new policies. Especially under SEC's principle of "separating protocol and front-end regulation", underlying AMM protocols as on-chain code execution tools will significantly reduce legal risks. Coupled with the continuous enrichment of RWA (real-world assets) and on-chain asset bridges, on-chain trading depth and capital efficiency are expected to undergo systematic repair. Additionally, on-chain oracle and price feed infrastructures represented by Chainlink, by not constituting direct financial intermediaries in regulatory classification, have become key "risk-controllable neutral nodes" in institutional-level DeFi deployment, bearing important responsibilities for system liquidity and price discovery within the compliance framework.
Furthermore, DeFi protocols with high endogenous yield rates and stable cash flows will usher in a credit repair cycle after institutional pressure is released, becoming the focus of risk capital again. In the early development cycles of DeFi, lending protocols like Compound, Aave, and MakerDAO became the credit foundation of the entire ecosystem through their robust collateral models and liquidation mechanisms. However, with the spread of crypto credit crisis between 2022-2023, DeFi protocol balance sheets faced liquidation pressure, stablecoin de-pegging and liquidity depletion events occurred frequently, and asset safety doubts caused by regulatory gray areas led to structural risks of market trust weakening and token price stagnation. Now, with regulations gradually clarifying and constructing systematic recognition pathways for protocol income, governance models, and audit mechanisms, these protocols can potentially become "on-chain stable cash flow carriers" through their quantifiable, on-chain verifiable real yield models and lower operational leverage. Especially as DeFi stablecoin models evolve towards "multi-collateral + real asset anchoring", on-chain stablecoins represented by DAI, GHO, and sUSD will build institutional moats against centralized stablecoins (like USDC, USDT) under clearer regulatory positioning, enhancing their systemic attractiveness in institutional fund allocation.
It's worth noting that the common logic behind these three lines is the rebalancing process of "policy cognitive dividends" brought by SEC's new policies transforming into "market capital pricing weights". Previously, DeFi valuation systems heavily relied on speculative momentum and expectation amplification, lacking stable institutional moats and fundamental support, which exposed significant vulnerability during market countercyclical periods. Now, with regulatory risks mitigated and legal pathways confirmed, DeFi protocols can establish valuation anchoring mechanisms facing institutional capital through real on-chain revenue, compliant service capabilities, and systematic participation thresholds. The establishment of this mechanism not only enables DeFi protocols to reconstruct "risk premium-return models" but also means DeFi will first possess credit pricing logic similar to financial enterprises, creating institutional prerequisites for accessing traditional financial systems, RWA docking channels, and on-chain bond issuance.
IV. Market Resonance: From TVL Surge to Asset Price Reassessment
The release of SEC's new regulatory policies not only released positive signals of prudent acceptance and functional regulation of the DeFi field at the policy level but also quickly triggered a chain reaction in the market, forming an efficient positive feedback mechanism of "institutional expectations - capital backflow - asset reassessment". The most direct manifestation is the significant recovery of DeFi Total Value Locked (TVL). Within a week after the new policies' release, according to tracking by mainstream data platforms like defillama, Ethereum's DeFi TVL rapidly jumped from approximately $46 billion to nearly $54 billion, with a weekly increase of over 17%, creating the largest weekly increase since the FTX crisis in 2022. Simultaneously, TVL for multiple mainstream protocols like Uniswap, Aave, Lido, and Synthetix grew synchronously, with on-chain transaction activity, gas usage, and DEX transaction volume comprehensively recovering. This broad-spectrum market response indicates that clear signals from the regulatory level have effectively alleviated institutional and retail investors' concerns about potential legal risks in DeFi, thereby promoting off-site funds to re-enter the sector and form structural incremental liquidity injection.
Moreover, on-chain data also reveals changes in the fund distribution structure. After the new policy was issued, the number of on-chain deposit transactions, user count, and average transaction amount for multiple protocols significantly increased, especially in protocols with high RWA integration (such as Maple Finance, Ondo Finance, Centrifuge), where the proportion of institutional wallets rapidly rose. Taking Ondo as an example, its short-term US Treasury Token OUSG has grown over 40% in issuance scale since the new policy was released, indicating that some institutional funds seeking compliance pathways are using DeFi platforms to configure on-chain fixed-income-like assets. Meanwhile, stablecoin inflows to centralized exchanges have shown a declining trend, while stablecoin net inflows in DeFi protocols have begun to rebound, suggesting that investors' confidence in on-chain asset security is recovering. The trend of decentralized financial systems regaining fund pricing rights is initially emerging, with TVL no longer just a short-term traffic indicator for speculative behavior, but gradually transforming into a weathervane for asset allocation and fund trust.
It is worth noting that although the current market response is significant, asset price reassessment is still in its preliminary stage, with substantial room for institutional premium realization far from complete. Compared to traditional financial assets, DeFi protocols still face higher regulatory trial-and-error costs, governance efficiency issues, and on-chain data audit challenges, leading the market to maintain a certain cautious attitude even after risk appetite shifts. However, it is precisely this resonant situation of "institutional risk contraction + value expectation restoration" that opens up space for medium-term valuation inflation in the DeFi sector. Currently, the P/S (Price-to-Sales) ratios of multiple top protocols remain far below mid-bull market levels in 2021, and under the premise of maintaining real yield growth, regulatory certainty will provide upward momentum for their valuation centers. Simultaneously, asset price reassessment will also transmit to token design and distribution mechanisms, with some protocols restarting governance token buybacks, increasing protocol surplus dividend ratios, or promoting Staking model reforms linked to protocol revenue, further incorporating "value capture" into market pricing logic.
V. Future Outlook: DeFi's Institutional Reconstruction and New Cycle
Looking ahead, the SEC's new policy is not just a compliance-level policy adjustment, but a critical turning point for the DeFi industry to move towards institutional reconstruction and sustainable healthy development. The policy clearly defines regulatory boundaries and market operation rules, laying the foundation for DeFi to transition from "wild growth" to a mature, compliant market. In this context, DeFi not only faces significantly reduced compliance risks but also welcomes a brand new development stage of value discovery, business innovation, and ecosystem expansion.
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