SEC four-year investigation concludes: Aave fully exonerated, DeFi wins a crucial victory

The U.S. Securities and Exchange Commission (SEC) has officially concluded its nearly four-year investigation into the leading decentralized finance (DeFi) protocol Aave, and has not recommended any enforcement action. Aave founder Stani Kulechov announced this outcome publicly on August 12, calling it a victory in a “major defense battle.” This case marks another high-profile crypto investigation closed by the SEC since 2025, along with the prior dismissals of cases against Ondo Finance, Coinbase, and others, signaling a shift in U.S. crypto regulation from “litigation enforcement” to seeking clearer policy guidance. For the entire DeFi industry, this is a landmark event in reducing regulatory uncertainty and boosting market confidence.

A Four-Year Regulatory Tug-of-War Comes to an End

For veteran protocols like Aave, the prolonged shadow of regulatory scrutiny—lasting four years—has finally been lifted. Recently, the SEC notified Aave that its staff do not intend to recommend enforcement action regarding an investigation internally numbered “HO-14386”. The letter, dated August 15, is a standard procedural document but includes a disclaimer stating that this decision does not imply “exoneration,” and the SEC may reopen the investigation in the future.

This investigation began in late 2021 or early 2022, during a period of intense SEC scrutiny of the DeFi space. At that time, enforcement focus shifted from centralized exchanges to decentralized protocols offering lending, liquidity services, and other activities without traditional intermediaries. Although the SEC has never publicly detailed its specific concerns about Aave, industry speculation suggests that the core issue revolved around whether AAVE governance tokens or certain protocol operations constitute “securities” under U.S. law, thus requiring registration.

Aave’s approach throughout the process was cooperative and communicative. Founder Stani Kulechov openly stated that this required significant effort and resources from both the company and himself. In June this year, Aave representatives also met with the SEC’s newly formed Crypto Assets Working Group to discuss regulatory pathways. This “long regulatory pressure” not only targeted Aave but also extended across the entire DeFi ecosystem. Now that the investigation has ended without action, it removes a significant short-term operational risk for the protocol and its users, reinforcing its stability to continue servicing the U.S. market.

Key Timeline of Aave’s Response to SEC Investigation

• Investigation Initiation (late 2021-early 2022): SEC launched investigation into Aave protocol amidst DeFi regulatory surge.
• Ongoing Communication and Defense (2022-2025): Aave team dedicated substantial resources to multi-year dialogue and defense.
• Key Meeting (June 2025): Aave representatives met with SEC Crypto Assets Working Group to explore regulatory frameworks.
• Case Closure (August 2025): SEC issued a closure notice, not recommending enforcement action. AAVE token briefly surged to $194.
• Public Disclosure (August 12, 2025): Aave founder Stani Kulechov publicly announced the outcome on social platform X, declaring “DeFi Wins.”

Shift in SEC’s Regulatory Signal: From Full Enforcement to Selective Retreat

The closure of the Aave case is not an isolated event but further evidence of a structural shift in the 2025 U.S. crypto regulatory landscape. Since the beginning of this year, the SEC has consecutively closed, withdrawn, or terminated several high-profile investigations and lawsuits in the crypto sector, forming a clear “withdrawal wave.”

Before Aave, Ondo Finance announced in July that its investigation into tokenized real-world assets (RWA) and ONDO tokens had also concluded. Earlier, lawsuits or investigations involving platforms like Coinbase, Kraken, Robinhood, and protocol developers such as Uniswap Labs and ConsenSys also ended with SEC withdrawals or settlements. Notably, many of these withdrawals are “biased” — meaning the SEC cannot file similar claims again based on the same grounds in the future.

This series of actions is set against a backdrop of leadership changes and strategic adjustments within the SEC. A review report by The New York Times pointed out that since 2025, the SEC has not filed any new federal court lawsuits related to cryptocurrencies. For cases inherited from the previous administration, the SEC has withdrawn from over half of them, dismissing, halting, or compromising on key issues. The new leadership has publicly stated that they are shifting from relying on lengthy lawsuits to “rulemaking,” aiming to provide clearer policy guidance. Meanwhile, the SEC has established a Crypto Assets Working Group and launched initiatives like “Crypto Projects” to update rules for on-chain activities, indicating an intent to develop an adaptive regulatory framework.

“DeFi Will Win”: Deep Impact on Industry and Innovation Environment

The founder’s declaration that “DeFi will win” after the case’s conclusion is more than just a victorious slogan; it may signal a window of opportunity for industry innovation to breathe and rebuild. The near four-year investigation ending without charges sends a strong signal to the market: for mature, communicative, and technically neutral DeFi protocols like Aave, the SEC is likely to find it difficult to bring convincing enforcement actions under the current securities law framework.

This significantly alleviates the regulatory uncertainty that has long haunted DeFi developers. Over the past few years, this uncertainty severely hindered DeFi innovation within the U.S., pushing many projects and talents to more regulation-friendly jurisdictions. Now, with clearer risk margins, developers can focus more on protocol upgrades, product innovation, and user experience, without constant fear of sudden enforcement crackdowns. This is undoubtedly a positive development for major upgrades like Aave’s upcoming V4.

From a broader competitive perspective, the softening of U.S. regulatory stance can be seen as a strategic move in the global race for crypto leadership. While the EU has established a comprehensive framework with MiCA and multiple Asian regions actively attract crypto businesses, continued aggressive enforcement in the U.S. could lead to capital and innovation outflows. The current policy shift helps retain innovation domestically and enhances the U.S.'s influence in future international digital asset regulation. Of course, this does not mean a lack of regulation, but rather a move toward more nuanced, targeted approaches that distinguish truly decentralized protocols from centralized projects cloaking as DeFi.

Market Interpretation and Investor Strategy: Sentiment Recovery and Revaluation

Market reactions to regulatory good news are swift and direct. Following the news of investigation closure, AAVE token price surged, reaching an intra-day high of $194, before settling around $187.67, a 24-hour increase of 2.4%. This price movement reflects the market’s reassessment of regulatory risks.

For investors, this event offers multiple interpretive layers. First, it reinforces the concept of “Compliance Premium”—that well-established, actively communicative, and fundamentally neutral DeFi projects can have their long-term investment value more confidently affirmed. Second, it may trigger a revaluation of similar blue-chip DeFi protocols, as investors anticipate reduced policy risks for those in similar regulatory gray areas. Finally, it underscores that in crypto, regulatory dynamics are now a key factor influencing asset prices alongside technology developments and macroeconomic conditions.

However, rational investors should also heed the caveats in the SEC’s closure statement. The regulatory environment remains uncertain—if future fraud or investor harm occurs, the SEC could reassert enforcement power. Simplistically viewing this as “DeFi is now fully free” is risky. A more prudent approach is to regard this as a positive milestone in industry mainstreaming and compliance, maintaining ongoing vigilance on regulatory developments, and integrating long-term fundamentals, governance maturity, and regulatory resilience into core investment assessments.

Future Outlook

The SEC’s four-year investigation into Aave ending without result, alongside the withdrawal of multiple crypto lawsuits since 2025, sketches a clear trajectory: U.S. crypto regulation is undergoing a profound paradigm shift—from boundary testing through litigation to building more predictable policy frameworks. For Aave and the broader DeFi industry, this is undoubtedly a victory, removing one of the greatest uncertainties hindering innovation, and affirming that purely decentralized protocols possess strong resilience and viability within the existing legal framework.

However, this victory is not the end of the battle, but the beginning of a new phase. It signals a shift from adversarial courtroom battles to more consultative negotiations. Key questions—such as defining decentralization, appropriately classifying governance tokens, and protecting investors without stifling innovation—remain to be addressed. Aave’s case offers a reference point for these dialogues, but ultimately, the true meaning of “DeFi will win” depends on whether the industry can leverage this space to build a transparent, robust, and inclusive financial ecosystem. The Damocles sword of regulation may hang overhead temporarily, but the responsibility for constructing the future now more clearly rests on the builders’ shoulders.