SEC Commissioner Hester Peirce drew a clear distinction regarding decentralized finance on Sept. 17, stating that investors do not require an exemption to utilize permissionless smart contracts for peer-to-peer trading. The actions taken by the SEC and CFTC examined in this analysis establish distinct boundaries concerning intermediary control.
The open question remains the extent of control a software provider can maintain before transitioning into a regulated intermediary.
Peirceâs remarks represented her personal viewpoint, as establishing a binding definition from the US Securities and Exchange Commission would necessitate formal Commission action. The SECâs tokenized-securities order and a separate staff statement leave her phrasing of âtruly decentralizedâ without an official definition, instead concentrating their specific provisions on custody, access, software parameters, fees, recommendations, routing, and execution.
Each action functions under a distinct statute and carries its own legal weight, collectively demonstrating how federal regulators evaluate the authority retained by identifiable providers in the absence of a unified federal decentralization test.
The SEC traces control from the market to the frontend
The SEC tokenized-securities order issued on Sept. 17 is a formal directive of the Commission, establishing temporary and conditional relief for a defined Tokenized Securities Venue (TSV) that utilizes automated market maker pools for permissioned trading in Tokenized NMS Stocks.
Under the order, a TSV fulfills two primary functions: it operates one or more AMM pools for permissioned participants and sets the standards that dictate who may access those pools.
For the purposes of this exemption, the order assigns a functional definition to the term âprovides.â Actions that qualify include selecting and designating a pool, deploying its trading contract, modifying its rules or parameters, configuring its fees, or keeping the ability to pause trading. Conversely, merely performing the administrative duty of encoding a whitelist falls outside this definition.
Because automation still leaves several consequential decisions in human handsâsuch as selecting the venue, adjusting fees, pausing activity, or determining accessâPeirce placed the order outside the realm of decentralized finance, characterizing genuinely permissionless software as a separate model. This permissioned venue demonstrates why operational powers remain significant even when trades are executed by smart contracts.
An additional layer of control is introduced by the interface.
An April statement issued by the SECâs Division of Trading and Markets outlines the conditions under which staff would refrain from objecting to specific crypto asset securities interface providers operating without broker-dealer registration pursuant to Section 15. The legal impact of this statement is limited: it represents staff views, holds no binding legal force, imposes no new obligations, and is scheduled to be considered withdrawn five years after April 13, 2026, barring any intervening Commission action.
The interfaces covered by this guidance assist users in preparing transactions via self-custodial wallets, meaning the user retains the keys, selects or customizes transaction parameters, signs the transaction, and transmits the instructions. When multiple execution routes are displayed, they must be filterable and sortable using objective criteria. If an interface displays only a single route, users must be able to access existing alternatives. Furthermore, any software utilized to prepare instructions or present routing data must function on pre-disclosed, objective, and independently verifiable parameters.
The staff position excludes functions that bear a closer resemblance to traditional brokerage. Specifically, it excludes providers that solicit a specific crypto asset securities transaction, offer investment recommendations, hold or access user assets, execute or settle transactions, or accept and route orders.
Compensation methods are similarly restricted; staff indicated it would not object if a user pays a flat fee or a percentage-based transaction charge that is objectively determined, applied consistently, and remains neutral across products, routes, venues, and counterparties. Payments originating from third parties that depend on the size, value, or frequency of a transaction are excluded from this stance.
Consequently, these conditions integrate the frontend into the regulatory evaluation, as default settings, route rankings, preferred venues, and fee incentives can direct user behavior even when the final transaction is signed from a self-custodial wallet.
The CFTC permits more promotion under a narrower registration position
The CFTC announcement and Staff Letter 26-25, released on Sept. 17, outline a staff no-action position. The Market Participants Division stated it would not recommend enforcement action against qualifying passive-software providers for failing to register as introducing brokers, nor against associated personnel for failing to register as such.
This position applies when users execute transactions on a designated contract market either directly as members or indirectly through a futures commission merchant or introducing broker that holds DCM membership. The stance relies on the facts presented, preserves the Commission’s authority, and remains subject to change, suspension, or termination by the Division.
The activities permitted under this relief allow for broader promotion and compensation compared to the SEC interface guidelines. A provider is permitted to promote specific derivatives, steer users toward particular registered firms, charge transaction-based fees to users, and collect a portion of a registrantâs revenue.
Nevertheless, the provider must maintain a hands-off approach in several vital areas. Users must retain the ability to access the registrant directly, and the provider is strictly prohibited from holding custody or control of customer property, issuing explicit buy or sell signals, taking affirmative part in any specific order, or exercising discretion over routing and execution.
This relief is also contingent upon adequate disclosures, marketing controls, written undertakings with registrants, proper recordkeeping, and formal notices delivered to the Division, thereby maintaining accountability while the software provider operates outside introducing-broker registration requirements.
The primary distinctions center around six distinct forms of control.
| Area of control | SEC order or staff position | CFTC staff position | Scope of the condition |
|---|---|---|---|
| Custody | The interface provider is barred from holding or accessing user assets | The provider is barred from custody or control of customer property | Each staff position requires separation from customer property |
| Access | A TSV sets participant standards; an interface discloses venue limits | Users trade on a DCM directly or through a member FCM or IB and retain direct access to the registrant | Each document specifies its own access structure |
| Recommendations | The interface position excludes specific-transaction solicitation and investment recommendations | Promotion may be allowed; explicit buy or sell signals are excluded | The staff positions draw different lines around steering |
| Routing | The interface provider is barred from taking or routing orders; displayed alternatives use objective parameters | User-directed transmission may occur; provider discretion over routing or execution is barred | The SEC position excludes order routing, while the CFTC position centers on discretion |
| Fees | User-paid charges must be objectively determined and neutral | Transaction fees and registrant revenue sharing may be allowed | Compensation is treated within each statutory setting |
| Parameters and pauses | Changing pool rules, parameters or fees, or pausing trading can mean a person provides the pool | The letter gives these powers no central role | The SEC factor belongs to the orderâs specific venue exemption |
Every factor functions strictly within the narrow limitations of its governing source document. The Commission order applies to a single securities-venue model, SEC staff outlines its Section 15 position for designated interfaces, and CFTC staff offers conditional enforcement forbearance within the registered derivatives marketplace.
Technical design carries as much weight as disclosures, access frameworks, marketing restrictions, recordkeeping practices, and retained authorities, with the relevant combination shifting across securities venues, crypto interfaces, and derivatives software.
Who decides what counts as âtruly decentralizedâ
While Peirce offers the foundational principle that eliminating the trusted intermediary undermines the regulatory framework built around it, her individual statement lacks the authority to establish an official Commission category.
Regulatory authority is fragmented across the aforementioned actions. The Commission defines the reach of its TSV order, the SECâs Division of Trading and Markets administers its nonbinding Section 15 stance, and the CFTCâs Market Participants Division evaluates whether specific factual scenarios align with its conditional enforcement posture. Each determination addresses a question rooted in a particular statute and form of relief.
A protocol, its governance mechanism, and its frontend may occupy distinct positions along the control spectrum. For example, while a core protocol might resist alteration, its corresponding interface can remain curated, fee-collecting, and capable of directing users. Similarly, software can link users to regulated entities while ensuring that orders, assets, and execution stay entirely outside the provider’s discretion.
For builders and participants, practical evaluations begin by examining specific powers: Who manages access and assets? Who holds the ability to recommend, route, or execute transactions? Who establishes fees or modifies software parameters? Who possesses the power to system pauses? Ultimately, the governing statute alongside the actor exercising those powers dictates which regulatory body and legal standard apply.
Although âtruly decentralizedâ remains Peirceâs descriptive term, federal law establishes no corresponding legal category. Instead, these actions by the SEC and CFTC generate a fact-dependent map of retained authority, complete with separate boundaries for the Commission order and each individual staff position.
