Galaxy Says SEC Custody Rule Limits RIAs’ Ability to Meet Client Demand for DeFi Exposure

Galaxy said many registered investment advisers (RIAs) struggle to meet client requests to allocate funds to decentralized finance (DeFi) while complying with the U.S. Securities and Exchange Commission’s Custody Rule. According to Odaily, the rule requires client assets to be held with a qualified custodian, which in practice excludes self-custody and makes it difficult for traditional financial accounts to participate directly in DeFi strategies. Galaxy said custodians face high technical integration and compliance costs when connecting with newer blockchains, tokens, and DeFi protocols, and many custodians lack the capability to support DeFi interactions. It said this has contributed to an ongoing gap in compliant infrastructure. Galaxy added that fiduciary obligations mean RIAs cannot simply dismiss client demand for DeFi exposure, creating a structural tension between compliance requirements and investment preferences. Galaxy said a potential path forward could be a principles-based regulatory framework that includes multiparty computation (MPC) key management, governance controls, third-party audits, on-chain transparency, and strict protocol due diligence, aimed at enabling on-chain asset allocation without weakening regulatory objectives.