Galaxy Digital: US SEC custody rules clash with DeFi demand

Institutional crypto financial services firm Galaxy Digital (Nasdaq: GLXY) has pointed out a structural contradiction between the U.S. Securities and Exchange Commission's (SEC) custody rules and the demand for DeFi. The firm noted that many Registered Investment Advisors (RIAs) are struggling to comply with the SEC's custody regulations while meeting client demand for DeFi investments. According to Galaxy Digital, the current rules require client assets to be held by a qualified custodian, which not only effectively excludes self-custody but also makes it difficult to participate directly in DeFi strategies through traditional financial accounts. The firm stressed that a realistic solution would be to establish a principles-based regulatory framework incorporating elements such as MPC-based key management, governance control systems, third-party audits, on-chain transparency, and rigorous protocol due diligence mechanisms.