SEC Unshackles Digital Asset Interfaces — What the New Broker-Dealer Guidance Means for DeFi and Every Digital Asset Platform

Whether a software interface that provides access to digital asset transactions triggers a requirement to register as a “broker” or “dealer” has been one of the most contested questions at the intersection of securities law and digital asset technology.[1] On April 13, the Staff of the Division of Trading and Markets issued a staff statement that for the first time sets out specific conditions under which a crypto user interface provider can operate without registering as a broker-dealer under Section 15(a) of the Securities Exchange Act of 1934.

This guidance has significant implications for every digital asset business that provides access to, facilitates, aggregates or routes transactions in any form, whether or not the business believes any of its supported assets are securities, and whether the platform describes itself as centralized, decentralized or somewhere in between. Even providers that do not intend to rely on the statement directly may benefit from benchmarking their interfaces, business models and practices against the staff’s stated conditions and understanding the impact on revenue models, since those conditions now reflect the current SEC’s enforcement priorities and analytical framework.

The SEC previously brought enforcement actions against certain wallet providers alleging that they acted as unregistered brokers by offering self-custody crypto wallets that provided an interface allowing users to transact in crypto assets through the use of third-party services. Prior SEC guidance, including no-action letters predating digital assets,[2] recognizes that technology service providers and payment rails can, under the right conditions, provide infrastructure in connection with securities transactions without registering as broker-dealers.[3]

1. Exclusion of ‘Covered User Interfaces’ From Broker-Dealer Registration

The statement’s relief applies only to operators of “Covered User Interfaces,” defined as an interface provided by a website, browser extension or other software application (including mobile applications) that may be embedded in a wallet or separately available for download. To qualify, the interface must be designed to assist users engaging in user-initiated crypto asset securities transactions on blockchain protocols or smart contracts, utilizing the user’s self-custodial wallet. The wallet provider must not have custody of or access to the user’s encrypted or decrypted private key.

The statement only applies to the use of a Covered User Interface for “crypto asset securities” transactions and not to non-tokenized securities. A “crypto asset” is defined as any digital representation of value that is recorded on a cryptographically secured distributed ledger and defines crypto asset securities to include tokenized versions of an equity or debt security.

If a provider of a Covered User Interface meets certain conditions, the staff states it will not object to the provider operating without broker-dealer registration. The conditions fall into several functional categories:

Non-Solicitation of Specific Transactions

• No Specific Solicitation. The Covered User Interface Provider must not solicit investors to engage in any specific crypto asset securities transactions.

User Control, Execution Routing and Neutrality

• Parameter Customization and Education. The Covered User Interface must permit users to customize any default transaction parameters and must provide educational material to help users formulate and set their desired parameters.
• Default Execution Pathways. The provider may select one or more default trading venues or distributed ledger trading systems (such as automated market maker liquidity pools and aggregators) with which to connect. The provider must not provide commentary indicating that any execution route offers the “best price” or is the “most reliable.”
• Alternative Pathways. If only one potential execution route is displayed, the interface must provide the user the ability to see additional routes, if applicable.
• Execution Pathway Sorting. If multiple routes are displayed, the interface must offer filtering or sorting tools based on objective factors (such as alphabetical order, lowest or highest price, or speed).
• Software Transparency. The interface must use only software that operates based on pre-disclosed, objective, and independently verifiable parameters for preparing trading instructions and displaying market data.
• Limited Provider Role. The provider must not exercise any control or discretion over or engage in any decision-making regarding the market information provided or securities transactions, beyond the functions described in the statement.

Compensation Structure

• Transaction-Based User Fees Permitted. The provider must limit its compensation to a fixed charge to the user, either a flat fee or a fixed percentage per transaction, applied consistently and agnostic as to product, execution route, execution venue and counterparty.
• No Transaction-Based Compensation for Non-Users and Payment for Order Flow. No payment for order flow or any compensation based on the size, value or occurrence of a transaction from any person other than the user is not permitted.

Policies, Procedures and Controls

• Policies Based on Objective Criteria. The provider must establish policies, procedures and controls reasonably designed to evaluate, onboard and audit trading venues and distributed ledger trading systems based on objective criteria (such as liquidity, latency, transparency, verifiability and security), and to periodically reassess default transaction parameters while addressing associated conflicts of interest.
• Maintaining Books and Records. The staff also notes that establishing and maintaining documented policies and procedures relating to the Covered User Interface’s operation, and maintaining books and records (including by utilizing publicly available distributed ledger transaction records in coordination with internal non-public records), may be helpful to a provider in demonstrating that it operates within the statement's described parameters.

Disclosure Requirements

The provider must prominently disclose to users and promptly update as necessary all material facts related to the following categories:

1. Provider’s Role. The provider’s role with respect to the Covered User Interface, including a prominent disclaimer that the provider is not registered with or regulated by the SEC in that capacity.
2. Provider’s Fees. The provider’s fees, calculation methodology and structure.
3. Conflicts of Interest. Material conflicts of interest associated with a crypto asset securities transaction and use of users’ trading information by the provider or its affiliates.
4. Interface Limitations. Any limitations associated with the interface, including limitations, permissions or restrictions regarding specific crypto asset securities, market data and available trading venues or distributed ledger trading systems.
5. Interface Parameters. The parameters used in the interface’s software for preparing trading instructions and displaying market data related to potential execution routes.
6. Cybersecurity Policies. The provider’s current cybersecurity policies, procedures and controls, if any, including measures to minimize errors, prevent unauthorized access, and protect from internal and external threats.
7. Anti-Manipulation Policies. The provider’s policies, procedures and controls, if any, to protect user trading information, including from potential fraud or manipulation involving maximal extractable value (MEV) strategies.
8. Trading Venue Integration. The interface’s integration with trading venues or distributed ledger trading systems, including their names and the provider’s policies for evaluating, onboarding and auditing them.
9. Default Parameters. Any default transaction parameters, including how they are determined, the associated risks, conflicts of interest, and the provider’s policies and controls to address them.
10. Affiliation. If the interface connects with a trading venue or distributed ledger trading system operated by the provider or its affiliates, such affiliation must be clearly disclosed and the interface must connect to such affiliated venue on the same terms as any unaffiliated interface.

 

2. Activities Outside the Scope of the Statement and Limitations

The statement’s relief does not extend to a Covered User Interface provider that engages in or holds itself out as providing any of the following services with respect to securities, including crypto asset securities:

• Negotiating transaction terms.
• Soliciting specific transactions.
• Making investment recommendations or providing advice.
• Arranging financing.
• Processing trade documentation.
• Conducting independent asset valuations.
• Holding, having access to, handling, managing or possessing user funds, securities or stablecoins.
• Executing or settling transactions.
• Taking or routing orders.

The statement also does not expressly address potential regulation of developers or operators of open source or other software protocols which enable actual execution of transactions. As an immediately effective interpretation and not a rule, a future statement could unwind this position in the future just as quickly if SEC staff positions changed. Interpretive questions remain as to how to apply the concepts in the statement, but the statement nonetheless will be influential and provide room for digital asset innovators to build and operate.

3. Practical Implications

This guidance is useful to every digital asset business that facilitates, aggregates or routes transactions in any form, whether or not a person believes any of its supported assets are securities, and whether the platform is centralized, decentralized or somewhere in between. Even providers that do not intend to rely on the statement directly may benefit from benchmarking their practices against the staff’s stated conditions, since those conditions now reflect the current staff’s enforcement priorities and analytical framework.

In light of the statement, affected businesses should consider the following review across four areas:

• Websites, interfaces and marketing. Review public-facing websites, application interfaces and product documentation for representations that could be characterized as soliciting specific transactions or providing commentary favoring particular execution routes. Language describing a platform as offering “the best price,” “optimal routing,” or similar superlatives may be inconsistent with the statement's conditions. Ensure the nine required disclosure categories, including the SEC non-registration disclaimer and any affiliated venue disclosures, are prominently presented to users.
• Terms of service and user agreements. Review terms of service and user agreements to confirm they accurately describe the provider’s role and do not characterize the provider as engaging in order routing, execution, advisory or other broker-like functions. Default parameter disclosures should be reflected consistently in user-facing documentation.
• Policies, procedures and controls. Assess whether documented policies and procedures exist for evaluating and onboarding trading venues and distributed ledger trading systems, for periodically reassessing default parameters, and for cybersecurity and MEV-related protections. These are both substantive conditions for relief and a practical evidentiary record in the event of regulatory inquiry.
• Business model review. The statement’s conditions collectively describe a narrow operational lane: a provider that converts user instructions into blockchain commands, displays objective market data, charges fixed fees and stays out of the decision-making. Providers whose revenue model, product features or go-to-market positioning pushes against any of those boundaries should assess whether adjustments are necessary to fit within the statement’s conditions.
• Fee and compensation structures. Review revenue arrangements for consistency with the statement’s requirement that fees be fixed, product-agnostic, route-agnostic and counterparty-agnostic. Revenue-sharing arrangements, tiered fees tied to transaction value and payment-for-order-flow arrangements are not consistent with the conditions for relief.