The two "thresholds" on the American financial landscape have recently been simultaneously put on hold. On one end is the Federal Reserve System, made up of the Washington Board and 12 regional Reserve Banks — this long-established structure, reliant on local boards to select presidents for autonomy and balance political power, is attempting to reform under the push of Board Member Christopher Waller, but has been halted by a public letter from Senate Banking Committee's Chief Democrat Elizabeth Warren. Warren pointedly criticized this not-yet-disclosed reform as “not a serious reform of the Federal Reserve system, but rather a way to appease Trump,” pulling the central bank governance adjustments directly back into the political struggle over the president's control over regional presidents. On the other end is the SEC custody rule that has already been written into the U.S. securities regulatory system: it requires registered investment advisors to entrust client assets to banks, trust companies, and other qualified custodians, and in the DeFi world where assets are managed by private keys or smart contracts, this rule is forming structural collisions. Galaxy publicly stated on July 2 via the X platform that the custody rule has left many RIAs at a loss between compliance and clients entering DeFi, calling for a principles-based framework to resolve the conflict. This politically pressured letter and industry public criticism seem to belong to the two systems of central bank governance and securities custody, yet both tighten the institutional gaps between traditional finance and crypto, forcing out an unavoidable core question: under the current American regulatory framework, who exactly is being shut out from innovation.
Warren presses pause on Fed regional bank reform
In the context of the long-standing “Washington Board + 12 Regional Reserve Banks” decentralization structure, Fed Board Member Christopher Waller suggested reforms to the regional bank operational structure but has not publicly disclosed any specific terms. Elizabeth Warren chose this moment to publicly write a letter in her role as Chief Democrat on the Senate Banking Committee, demanding that Waller stop pursuing the reform and directly pointed out that it “does not appear to be a serious reform of the Federal Reserve system,” but rather is appeasing “Trump who is trying to gain greater control over the regional bank presidents.” The political edge of this letter is not in the technical details, but in questioning the motivations behind the reform: once the reform is used to reshape the boundaries of regional president appointments and operations, the original design that balanced central and local, political and professional by having local boards select presidents, could potentially be subjected to stronger political control.
Warren's intervention effectively draws a red line on the existing governance framework. She did not wait for Waller to announce details, but instead preemptively bound the reform to the political attempts to “contend for control over regional presidents,” imposing political costs on the internal power restructuring within the Federal Reserve under the pretext of Congressional oversight. Given the high degree of autonomy granted to regional banks when the Federal Reserve System was established, this public pressure is seen as a warning against any plans that might weaken the autonomy of regional banks and enhance the influence of the central or executive departments. Whether the reform can continue is still unknown, but Warren has shifted the debate from technical improvement back to central bank independence: those who have the authority to rewrite the status of regional reserves in the system will have the opportunity to influence the future independence of monetary and financial policy, and this is no longer a domestic affair that the Fed Board can quietly handle.
Galaxy angrily points to SEC custody rules locking RIAs outside the chain
If the struggle surrounding the Fed's regional reserve reform is about who steers the central banking power landscape, then on the securities regulatory side, the SEC has long been building another more hidden high wall with its custody rules. The current custody rules require client assets managed by registered investment advisors to be stored with “qualified custodians,” which traditionally refers to regulated banks, trust companies, and other financial institutions. This arrangement designed for traditional securities accounts encounters structural misalignment when faced with crypto assets based on private key self-custody and smart contract custody, especially decentralized protocols: funds on-chain are either held in users’ own addresses or locked in contracts with no “certified operator,” making the required qualified custodian in regulatory texts nonexistent in DeFi scenarios.
On July 2, Galaxy publicly highlighted this contradiction via the X platform: many registered investment advisors must strictly adhere to custody rules, ensuring that all client assets can find qualified custodians under traditional structures, while simultaneously facing an increasing number of clients wanting to allocate funds to on-chain protocols. The result is that compliant funds wanting to access DeFi returns are either forced to go through various indirect and compromise structural arrangements or simply barred from the chain, abandoning the possibility of direct allocation at the protocol level. The custody rule, as an existing system in American securities regulation, inadvertently reshaped the flow of funds: it constrained the allocation paths and scale of RIAs and broader institutional capital, indirectly weakening the ability of DeFi protocols to attract compliant capital, while Galaxy's call for a “principles-based” new framework remains at an abstract level, leaving the institutional threshold a hard wall between the on-chain world and licensed advisors for the time being.
The same red line: regulation guards centralized control and risk gates
Between Washington and the on-chain world, the line-drawers are actually the same regulators. The Federal Reserve's decentralization structure was originally designed to establish institutional checks between the Washington Board and the 12 regional Reserve Banks: regional presidents are elected by local boards rather than directly appointed by the president; this design intentionally locks some power in the “local-professional” alliance to counterbalance centralization and short-term political interference. Warren's demand for Waller to halt the reform at this point is a public doubt as to whether this is catering to Trump’s attempt to strengthen control over the regional presidents, essentially reinforcing the existing defense line and guarding against any possible shifts that could tilt the central bank governance focus back toward political centrality.
The SEC custody rules, on the asset custody level, do a different version of the same action: they require registered investment advisors to place client assets with qualified custodians, traditionally regulated banks, trust companies, etc., which effectively erects a centralized, licensed gate at the funds' entrance, facilitating auditing, regulation, and accountability. DeFi emphasizes private key self-custody and smart contract autonomy, deliberately erasing “identifiable responsible entities,” leading to a structural conflict with this set of rules favoring centralized custody. Galaxy’s statement on July 2 just makes this conflict evident: many advisors are bound by custody rules but cannot comply with the demand for clients to allocate assets on-chain, leaving them barred from the institutional door. Placing Warren’s political oversight of the Federal Reserve reform alongside the SEC’s insistence on custody requirements reveals that regulation is conducting the same operation on both fronts of central bank governance and asset custody — safeguarding centralized control and risk gates through institutional design, determining which decentralized innovations can be integrated into the system and which are to be consistently kept outside the boundaries of traditional finance and the on-chain world.
Who is stuck at the door: RIAs, DeFi protocols, and regional reserve presidents
Within the Fed system, those who have been directly thrust into the spotlight are actually the regional reserve presidents who originally enjoyed a certain degree of autonomy and the local boards behind them. In the past, they were elected by local boards rather than directly appointed by the president, and this design was intended to create a buffer between political power and professional judgment. If the reform proposed by Waller advances, it effectively disassembles this buffer structure, altering the operational structure and personnel power distribution of the regional reserves, redrawing the boundaries of authority for local boards and presidents. Warren's public pressure as Chief Democrat on the Senate Banking Committee, questioning whether the reform caters to Trump’s attempts to gain greater control over regional presidents, turns these presidents and local boards into chips in a political game; they are no longer just technocrats but potential “targets for takeover.”
On the asset management side, those caught at the institutional door are another class of key roles: RIAs, DeFi protocols, and their compliant capital and ordinary clients. Registered investment advisors are an important channel for compliant asset allocation in the U.S., servicing a large number of high-net-worth individuals and institutional clients, but the SEC custody rules require that client assets they manage be placed with qualified custodians, while the on-chain world of self-custody and smart contract custody is precisely lacking these traditional custodians. Galaxy highlighted the reality on July 2: many RIAs, while complying with custody rules, find it fundamentally difficult to respond to clients’ desires to enter DeFi, causing DeFi projects to lose significant sources of compliant capital, and ordinary investors relying on RIAs for allocations can only access on-chain connections through limited compliant product pathways or bear self-custody risks themselves by stepping outside the system. Facing this high wall, some platforms choose to bypass RIAs and traditional custody channels, turning instead to non-RIA clients, overseas entities, or licensed partners to provide custody services, creating a layered entry into the U.S. market, but compliance risks always loom large. This business model of “hovering at the door” is itself a direct reflection of how regulatory boundaries alter industry dynamics.
The regulatory game is not over: the U.S. financial boundary redraw remains full of variables
From Warren's public pressure on Waller to halt regional reserve reform to the SEC custody rules erecting high walls in front of on-chain assets, these two seemingly unrelated fronts actually point to the same core: who has the authority to define “safety” and “responsibility,” thereby delineating the access boundaries of the American financial system. At the central bank level, the specific terms of Waller's reform plan, the Federal Reserve's responses, and potential legislative pathways remain in an information vacuum; whether the power structure between the Federal Board and the 12 regional reserves will be rewritten will directly relate to the concentration and political sensitivity of future monetary and financial regulatory decisions. At the securities regulation level, the SEC custody rules, which are already embedded in the system, continue to restrict RIA funding paths. Galaxy's call on July 2 for a principles-based framework to handle the conflicts between custody and DeFi has yet to provide regulatory authorities with immediately adoptable institutional details, and any adjustments toward on-chain assets are bound to be a protracted process of procedural and risk assessment debates. The dual debates on central bank governance and asset custody will influence the U.S. openness to decentralized innovation for the foreseeable future, and crypto projects, traditional asset management firms, and end users can only dynamically adjust their licensing layout, product structures, and risk disclosure rhythms under uncertain regulatory environments. Those who can first decipher the next changes in the regulatory landscape in this protracted game will have a better chance of securing their positions or even gaining incremental space in the process of redefining the U.S. financial boundary.
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