The U.S. Securities and Exchange Commission (SEC) has officially dropped its appeal in a lawsuit over a controversial broker-dealer rule that could have impacted decentralized finance (DeFi) platforms. The move, confirmed in a Feb. 19 court filing, ends a legal battle between the SEC and crypto advocacy groups.
SEC Withdraws Appeal After Court Rejection
The SEC had proposed a rule that would have expanded the definition of a “dealer” under U.S. financial laws. If enforced, the rule would have required crypto liquidity providers and automated market makers with over $50 million in capital to register with the SEC.
Crypto groups, including the Blockchain Association and the Crypto Freedom Alliance of Texas, opposed the rule. They argued that DeFi platforms operate without a central authority and cannot comply with traditional financial regulations like Know Your Customer (KYC) and Anti-Money Laundering (AML) laws.
In November 2023, a Texas federal judge blocked the SEC’s proposed rule, ruling that the agency had overstepped its legal authority. The SEC appealed the decision in January 2024, just days before former SEC Chair Gary Gensler stepped down. However, in its latest February 19 filing, the SEC moved to voluntarily dismiss the appeal, effectively conceding defeat.
A Victory for the Crypto Industry
Crypto advocates celebrated the SEC’s withdrawal in broker dealer rule as a major win for decentralized finance. Blockchain Association CEO Kristin Smith called it a “complete and total victory” in a statement on X.
Blockchain Association CEO Kristin Smith shared the case update on XThe ruling ensures that DeFi platforms will not be forced to register as traditional financial dealers. This was previously a requirement that many in the crypto industry argued was impossible to enforce.
Shift in SEC Leadership May Signal Policy Change
The SEC’s decision to drop the appeal comes amid major changes in the agency’s leadership. Former Chair Gary Gensler, who took a strict approach to crypto regulation, stepped down earlier this year. Upon his re-election, President Donald Trump appointed Mark Uyeda as acting SEC chair. Nominee Paul Atkins awaits Senate confirmation.
Under Uyeda, the SEC has paused or delayed lawsuits against crypto firms that were filed under Gensler. The agency has also formed a Crypto Task Force, led by Commissioner Hester Peirce, a long-time crypto supporter, to develop a regulatory framework for digital assets.
Recently, Trump said the crypto-related executive order that he signed last month helped “to end Joe Biden’s war on Bitcoin and crypto. The shift in US administration and SEC leadership seems to have brought positive changes in the crypto space, but only time will tell.
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