The U.S. Securities and Exchange Commission (SEC) is preparing to take what could be its most consequential step yet in reorienting national crypto policy. SEC Chair Paul Atkins announced that the agency plans to formally initiate rulemaking for a long-discussed “Innovation Exemption” by late 2025 or early 2026 — a measure designed to encourage companies to develop digital assets and related technologies within the United States.
Atkins emphasized that while the ongoing government shutdown has “hamstrung” the SEC’s ability to progress on rulemaking, the exemption remains one of his top priorities. Speaking at a Futures and Derivatives Law Report event hosted by Katten Muchin Rosenman LLP in New York, Atkins reiterated that crypto remains “job one” for the agency, underscoring a major philosophical shift from the SEC’s previous approach of regulation by enforcement.
If implemented, the Innovation Exemption would mark a tangible move toward what many in the industry — including regulators and law enforcement — have long called for: a clearer, rules-based framework for innovation rather than ad hoc enforcement.
For years, the SEC’s approach to digital assets has relied heavily on enforcement actions and informal staff guidance. This has created uncertainty for businesses developing blockchain applications, decentralized finance (DeFi) projects, and tokenized financial instruments. The result, as Atkins noted, has been a steady migration of innovation abroad.
A formal exemption framework could change that trajectory by establishing regulatory sandboxes or safe harbors for compliant innovation — areas where startups, financial institutions, and developers can test products under defined oversight rather than fear punitive action.
This evolution follows earlier signals of policy recalibration. As discussed in Merkle Science’s previous coverage of the SEC’s shift in crypto policy, the Commission has shown increased willingness to explore structured paths for digital asset products, from exchange-traded products (ETPs) to staking programs.
For law enforcement and compliance professionals, a defined innovation framework could bring much-needed clarity. The absence of formal rules has often complicated the investigation of crypto-related crimes, particularly when it comes to distinguishing between legitimate experimentation and illicit financial activity.
A rules-based approach could enhance cross-agency coordination, allowing the SEC, Treasury, FinCEN, and law enforcement to better identify and isolate bad actors without stifling legitimate development. It could also establish clearer disclosure and recordkeeping standards, improving transparency in digital asset transactions.
In that sense, the Innovation Exemption could simultaneously accelerate responsible innovation and strengthen enforcement precision, reducing gray areas that criminals exploit.
Atkins’ remarks also come amid broader regulatory progress. The GENIUS Act, the first major U.S. crypto-focused bill to become law, has already begun shaping the stablecoin sector. Treasury’s proposed rules for stablecoin issuers are beginning to provide much-needed guardrails for how digital dollars operate within the traditional financial system.
As highlighted in our blog on the GENIUS Act, that legislation laid the groundwork for more comprehensive frameworks — not just for stablecoins, but for the entire digital asset ecosystem. The Innovation Exemption could represent the next step in that evolution, focusing on innovation enablement while embedding compliance from the start.
While the government shutdown has slowed progress, Atkins expressed confidence that the SEC will move forward with formal rulemaking by the end of 2025 or the first quarter of 2026. His public statements make clear that innovation, not enforcement, will define this new phase of U.S. crypto oversight.
For law enforcement and compliance stakeholders, this shift presents both opportunity and responsibility. Clearer rules will mean better tools for collaboration — between innovators building the future of finance and investigators working to keep that future secure.
If successfully implemented, the Innovation Exemption could help restore the United States as a leader in blockchain development while ensuring that growth happens within a framework of accountability and transparency.
