How the Seventh Circuit Could Create a Pro-Innovation Standard

A direct challenge to the SEC's application of the Howey Test to core protocol software. The argument is that publishing open-source code is a protected First Amendment activity and does not constitute an investment contract.

• Key Precedent: Establishes a bright line between protocol creation and token promotion.
• Key Benefit: Protects foundational developers of networks like Ethereum, Solana, and Cosmos from retroactive liability.

A case distinguishing the act of running consensus software from operating an unregistered securities exchange. Targets the SEC's claim that Proof-of-Stake validators are underwriters or exchanges.

• Key Precedent: Decouples infrastructure provision from financial regulation, similar to how ISPs are treated.
• Key Benefit: Secures the legal basis for decentralized staking services like Lido and solo validators, protecting ~$100B+ in staked assets.

A test case for whether a smart contract that autonomously executes trades (e.g., a Uniswap pool) can be liable for the tokens it lists. Argues that code is a passive tool, not an active securities seller.

• Key Precedent: Protects the principle of permissionless composability, the engine of DeFi innovation.
• Key Benefit: Ensures Automated Market Makers (AMMs) and lending protocols like Aave cannot be held liable for third-party token integrations.

Challenges the notion that decentralized data providers (Chainlink, Pyth) are unregistered securities dealers because their feeds power derivative products. Positions oracles as utilities, not financial intermediaries.

• Key Precedent: Creates a safe harbor for critical Web3 infrastructure that is agnostic to asset type.
• Key Benefit: Secures the data layer for the entire multi-chain economy, enabling trillions in secure on-chain settlement.

A case examining whether fillers in intent-based systems (UniswapX, CowSwap, Across) are brokers. Argues that solving a user's intent through competitive auction is a software service, not brokerage.

• Key Precedent: Protects the emerging intent-centric architecture from being crushed under legacy broker-dealer frameworks.
• Key Benefit: Allows innovation in UX abstraction and cross-chain liquidity without creating regulatory choke points.

A direct rebuttal to the "sufficiently decentralized" ambiguity. Argues that a token conferring pure protocol governance rights—without profit rights—is a utility instrument, not a security.

• Key Precedent: Provides a clear, objective standard for DAO governance tokens like UNI or MKR.
• Key Benefit: Unlocks decentralized governance as a legitimate corporate structure, separating it from capital formation regulation.

The SEC's current application treats most tokens as securities, stifling functional utility. A pro-innovation ruling would enforce the "investment of money in a common enterprise" requirement strictly, creating a safe harbor for tokens that are primarily used for governance, gas, or staking within a functional network.\n- Benefit: Clearer path for L1/L2 tokens (e.g., SOL, AVAX) and DeFi governance tokens.\n- Benefit: Reduces existential legal risk for ~$100B+ in protocol-native assets.

Ambiguity around what constitutes 'sufficient decentralization' leaves builders in limbo. A favorable ruling would establish objective, on-chain metrics (e.g., validator count, governance participation, developer distribution) as the legal standard, moving beyond subjective intent.\n- Benefit: Protocols like Uniswap and Lido gain a stronger legal defense.\n- Benefit: Incentivizes genuine decentralization efforts over centralized launch strategies.

The SEC often claims promotional statements create an investment contract. A pro-innovation standard would require evidence of binding contractual obligations from the issuer, not just marketing hype. This protects builders who communicate a vision without making enforceable promises of profit.\n- Benefit: Founders can publicly roadmap and market without immediate legal peril.\n- Benefit: Shifts enforcement focus to outright fraud (Terra/LUNA) rather than technical development.

Regulatory uncertainty is the primary barrier to pension funds and sovereign wealth entering crypto. A clear, court-backed standard reduces compliance overhead and legal liability for asset managers, unlocking trillions in sidelined capital.\n- Benefit: Direct on-ramp for institutional BTC/ETH and staking products.\n- Benefit: Legitimizes tokenized RWAs and on-chain funds as compliant investment vehicles.

The SEC's strategy of suing protocols like Coinbase and Uniswap creates a chilling effect. A pro-innovation circuit ruling would force regulators to seek clear congressional authority before targeting decentralized software, establishing a precedent that code is speech.\n- Benefit: DeFi blue chips (Aave, Compound) can operate without existential dread.\n- Benefit: Accelerates development of permissionless and privacy-preserving protocols.

A favorable ruling makes the Seventh Circuit (Chicago) the most attractive US jurisdiction for crypto foundations. Expect a migration of legal entities and developer hubs from NY/SF to IL, similar to the Wyoming LLC boom.\n- Benefit: VCs and builders can co-locate in a pro-innovation legal zone.\n- Benefit: Creates a concentrated talent pool and regulatory sandbox for ~$50B+ in protocol treasuries.