The U.S. Securities and Exchange Commission (SEC) has decided to halt legal effort its plans to enforce a rule that would have increased its regulation of decentralized finance (DeFi).
In a document submitted to the Fifth Circuit Appeals Court, the SEC announced it would voluntarily retract its appeal after a lower court blocked the proposed rule.
To provide some background, in August, the SEC introduced new regulations redefining who qualifies as a 'dealer' under securities law, which required significant crypto market players with over $50 million to register with the SEC.
Better All The Time
Following the SEC's proposal, cryptocurrency advocacy organizations such as the Blockchain Association and the Crypto Freedom Alliance of Texas filed a lawsuit in the Northern District of Texas in April, contesting the SEC’s new rule.
These groups argued that the rule would place undue compliance challenges on decentralized finance platforms, which often lack a centralized structure and face difficulties adhering to Know Your Customer (KYC) and Anti-Money Laundering (AML) standards.
They claimed that the SEC surpassed its legal boundaries and violated the Administrative Procedure Act (APA).
In November, a federal judge from Texas ruled in favor of the crypto advocates, invalidating the SEC’s 'dealer' rule and declaring that the agency had acted beyond its scope.
The SEC recently attempted to challenge this court decision, but has now opted to abandon the appeal, thus concluding the legal skirmish.
“We've achieved a comprehensive victory in our battle against the SEC regarding the dealer rule,” stated Blockchain Association CEO Kristin Smith on X.“This is a moment of relief for the entire crypto sector.”
Buy Bye Hard Times
The SEC's decision to withdraw is being celebrated within the crypto community, which sees it as a significant win in the fight against excessive regulations that threaten innovation.
This decision is anticipated to create more regulatory certainty for DeFi projects and encourage their continued expansion. Although the SEC's aim may have been to safeguard investors, many in the crypto world viewed the proposed regulations as overly harsh and ultimately harmful.
This move highlights a broader shift within the SEC under President Donald Trump's administration toward a more pragmatic approach in regulating digital assets. The decision follows a leadership change at the SEC, with Mark Uyeda stepping in as Acting Chairman after Gary Gensler's recent departure.
Under President Trump, the SEC is expected to adopt a more lenient stance on digital assets, moving away from the rigorous enforcement strategies seen in recent years.
The SEC has already initiated changes, such as withdrawing SAB 121 and introducing SAB 122, which relax reporting requirements for companies managing crypto assets for their users.
Commissioner Hester Peirce, who leads the SEC's newly established Crypto Task Force, recently mentioned that many meme coins may not fall within the SEC's regulatory reach.
“It's likely that a significant number of meme coins don't fit within the SEC’s current regulatory framework,” Peirce stated in an interview with Bloomberg.
Commissioner Peirce currently heads the SEC’s Crypto Task Force, which aims to create a comprehensive regulatory framework for digital assets, focusing on clear guidelines and pragmatic registration processes instead of retroactive enforcement.
Recently, the SEC met with Jito Labs and Multicoin Capital Management representatives as part of the task force's mission to define clear standards for crypto ETFs. They discussed strategies for addressing regulatory challenges associated with crypto assets, including the possible integration of staking in exchange-traded products (ETPs).
Yesterday, the SEC formally acknowledged a proposed rule change from CBOE BZX Exchange and 21Shares for enabling staking within the 21Shares Core Ethereum ETF. Although this acknowledgment doesn’t guarantee approval, it's viewed as a positive step.
The SEC and major firms, such as Binance and Coinbase, involved in its lawsuits have agreed to pause legal proceedings.
