• SEC Chairman Paul Atkins is advancing an "innovation exemption" to provide regulatory flexibility for crypto firms, with formal rulemaking now targeted for late 2025 or early 2026.
  • The exemption, a key part of "Project Crypto," would allow companies to test novel business models under principles-based safeguards instead of full compliance with existing rules.
  • Operational delays from the federal government shutdown have hampered progress, but Atkins cites a strategic need to reverse the outflow of crypto innovation from the U.S.

In a significant shift from the prior administration's enforcement-heavy stance, Securities and Exchange Commission Chairman Paul Atkins is championing a regulatory sandbox for the digital asset industry. The so-called "innovation exemption" would establish a framework where companies can experiment with new technologies under defined guardrails, potentially in exchange for periodic reporting to the SEC. This move is central to Atkins's "Project Crypto," a commission-wide initiative he has labeled "job one."

During remarks on November 12, 2025, Atkins outlined the next phase of the project, emphasizing that the exemption remains a top priority despite operational headwinds. "The goal is to make the U.S. a welcoming environment for digital asset entrepreneurs again," he said, expressing concern that years of what he termed "industry repression" pushed development abroad. People familiar with the matter suggest the SEC is actively drafting the framework, though the federal government shutdown has slowed the agency's rulemaking machinery.

The proposed exemption represents a fundamental philosophical pivot. Instead of requiring immediate, full compliance with existing securities regulations—an often prohibitive barrier for nascent crypto business models—firms could operate under temporary, tailored safeguards. This principles-based approach would allow the SEC to monitor innovation while providing much-needed regulatory clarity. Atkins has pointed to anecdotal evidence that developers who fled the U.S. are now considering returning, a trend he hopes structured regulation will accelerate.

Broader efforts are underway in parallel. The Office of Information and Regulatory Affairs signaled in September 2025 that formal SEC proposals for a comprehensive crypto asset framework are expected in 2026. This includes developing a formal token taxonomy and refining the application of the Howey test to focus on when investment contracts "run their course." Legislative efforts on Capitol Hill, such as stablecoin-focused bills, are also progressing, with Atkins expressing optimism about complementary market structure provisions.

Balancing this push for innovation, Atkins was clear that investor protection remains paramount. The SEC will continue to pursue enforcement actions against fraud and illicit conduct, ensuring the new flexibility isn't exploited. The initiative's success likely hinges on this dual mandate: fostering a competitive landscape for legitimate builders while maintaining rigorous oversight. With the timeline now extending into 2026, the industry watches closely to see if the promised regulatory thaw materializes into actionable rules.

Correction: An earlier version of this article suggested the innovation exemption rulemaking would begin in January. Chairman Atkins's most recent remarks target the end of 2025 or early 2026 for initiating the formal process.