Peirce: Permissionless DeFi Should Need No Exemption

On Sept. 17 the Securities and Exchange Commission issued a Commission order granting temporary, conditional relief to a defined Tokenized Securities Venue (TSV) that uses automated market maker pools for permissioned trading in tokenized National Market System stocks. At the same time, Commissioner Hester Peirce argued investors need no exemption to use permissionless smart contracts for peer-to-peer trading and described genuinely permissionless systems as “truly decentralized.”

The SEC order gives a functional test for who “provides” an AMM pool. The order counts as providing a pool when a person deploys the trading contract, sets or changes pool rules and parameters, chooses or designates pools, sets fees, or retains authority to pause trading. The order says the mere administrative act of encoding an access whitelist does not alone make a person a provider.

An April staff statement from the SEC’s Division of Trading and Markets sets out circumstances in which staff would refrain from objecting to certain crypto-asset-securities interface providers operating without broker-dealer registration under Section 15. The statement applies to interfaces that help users prepare transactions through self-custodial wallets, where the user holds private keys, chooses or customizes transaction parameters, signs the transaction and transmits it. Software that displays execution routes must allow multiple routes to be filterable or sortable using objective factors and must disclose the parameters that determine route displays. The staff position excludes providers that solicit specific securities transactions, recommend investments, hold or access user assets, execute or settle trades, or take or route orders. It permits user-paid flat fees or objectively determined percentage charges that are consistent and neutral, and disallows payments from third parties tied to transaction size or occurrence. The staff statement is nonbinding and is slated for automatic withdrawal five years after April 13, 2026 unless the Commission acts.

The Commodity Futures Trading Commission’s Market Participants Division issued Staff Letter 26-25 on the same day, offering a no-action position for qualifying passive-software providers that would otherwise face introducing-broker registration requirements. The CFTC position applies when users trade on a designated contract market directly as members or indirectly through a futures commission merchant or introducing broker that is a DCM member. The letter allows providers to promote particular derivatives, direct users toward specific registered firms, charge transaction-based fees and receive a share of a registrant’s revenue. The relief requires the provider to be hands-off in key ways: users must be able to reach the registrant directly; the provider must not custody customer property, give explicit buy or sell signals, affirmatively involve itself in particular orders, or exercise discretion over routing or execution. The CFTC relief also imposes disclosure, marketing-control, written-undertaking and recordkeeping requirements.

The three documents draw different lines around six practical control points: custody of assets, access structures, recommendations and promotion, routing and execution discretion, fee arrangements, and the power to change software parameters or pause trading. Each document operates under a different statute and creates fact-specific limits on the authority an identifiable software provider may retain.

For protocol developers and users, the immediate questions are concrete: who controls access and assets, who can recommend, route or execute transactions, who sets fees or changes software parameters, and who can pause the system. Those answers determine which regulator and which legal standard apply. “Truly decentralized” remains the Commissioner’s description; federal law does not provide a settled legal definition.