The U.S. Securities and Exchange Commission has withdrawn its appeal to expand securities laws to decentralized finance (DeFi). This marks a significant victory for the crypto industry and indicates a potential change in the regulatory approach.
What Just Happened?
The SEC had proposed an expanded definition of 'dealer' that would require DeFi protocols, market makers, and liquidity providers to register as securities exchanges and brokers. In November 2024, a Texas federal court struck down this rule as 'untethered' from existing laws. In response, the SEC quietly withdrew its appeal in February 2025, effectively sealing the decision.
Why Did the SEC Back Down?
The court's ruling was clear: the SEC overstepped its authority by trying to regulate DeFi protocols like traditional financial brokers. Leadership changes also played a role: following Gary Gensler's departure, Mark Uyeda became the acting Chair, and Commissioner Hester Peirce led a new Crypto Task Force. The agency might be reconsidering its strategy under industry and political pressures.
Implications for Crypto and DeFi
This decision ensures a major legal victory for DeFi protocols, which won't be required to register as securities dealers for now. However, regulatory uncertainty still exists as the SEC is not stepping away from crypto regulation entirely. This could also be a positive signal for institutional investors, fostering more constructive engagement with the industry.
The SEC's withdrawal of the appeal marks a potential shift in regulatory strategy. Clearer regulations could create a stable environment for innovation in the crypto industry.
