They just released the new SEC guidelines on DeFi interfaces, and it's quite interesting what they are allowing here.

Basically, on April 13th, the SEC's Division of Trading and Markets published a guide that defines when cryptocurrency user interfaces can operate without registering as broker-dealers. We're talking about front-end interfaces for DeFi protocols, wallet extensions, mobile apps, that kind of thing.

The key point is that they identify five conditions that an interface must meet to avoid that registration. First, it cannot hold custody of users' funds, obviously. Second, no investment advice or trade recommendations. Third, it cannot route or execute orders on behalf of anyone. Fourth, it generally charges a flat fee per transaction. And fifth, no discretion over transactions.

Additionally, there are restrictions on how to label trading routes. You can't mark something as better or preferred, and anything that sounds like investment advice is prohibited.

Now, this is important: the SEC itself clarifies that this is not a formal binding rule. It is the current interpretation of the staff regarding existing law under the Exchange Act. The guidance is valid for five years unless replaced by formal regulation from the commission.

What happens is that the industry has been asking for clarity on how U.S. law should treat DeFi developers and all the infrastructure they build. Even after that historic joint statement from the SEC and CFTC earlier this year, many questions remain unanswered about fully permissionless DeFi.

Regulators have basically built frameworks around centralized actors and have been kicking the hardest questions about DeFi down the road. This has generated quite a bit of anxiety in the industry about what happens to protocol developers, front-end operators, and wallet providers.

The CLARITY Act circulating in Congress also leaves many issues unresolved, according to lawyers who have analyzed it. Basically, it gives agencies the power to fill in the details later through future regulation.

Meanwhile, both the CFTC and SEC say they are working to modernize rules and provide a clearer space for on-chain software systems. So, this seems like a step in that direction, although clearly there is still a lot to define in the DeFi space.