- The SEC dropped its appeal to expand authority over the DeFi sector on Wednesday.
- The SEC sought to redefine the term “dealer” to include DeFi protocols as well.
- Since Gensler’s departure, the SEC has seen various notable changes.
The US Securities and Exchange Commission withdrew its appeal in a case aimed at expanding securities laws to cover DeFi users and projects.
The agency filed a four-page motion in the U.S. Court of Appeals for the Fifth Circuit on Wednesday, formally pulling the appeal without opposition.
Leadership Change & Regulatory Shift
The decision comes as part of a shift under new leadership. After former SEC Chair Gary Gensler’s departure, Acting Chair Mark Uyeda adopts a friendlier stance toward crypto.
Uyeda will stay in charge until the Senate confirms Paul Atkins as permanent Chair under the Trump administration.
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SEC’s DeFi Regulation Efforts
The case began when the SEC tried to redefine “dealer” to include DeFi protocols, which would have forced projects to register as securities exchanges and brokers under strict oversight.
However, a year ago, the SEC’s move sparked legal action from two industry organizations: the Blockchain Association and the Crypto Freedom Alliance of Texas. They argued that the SEC’s approach violated the Administrative Procedures Act (APA), which governs how federal agencies implement new regulations.
Their lawsuit challenged the regulator’s attempt to impose traditional financial rules on decentralized systems.
Federal Court Ruling & Industry Impact
In November 2024, U.S. District Judge Reed O’Connor in Texas ruled against the SEC, deciding that the agency overstepped its authority.
The judge ruled that treating DeFi traders like traditional brokers was unlawful and did not match existing securities regulations, ordering the SEC to drop its crypto-related changes without a trial.
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This ruling has been a major victory for the DeFi industry, protecting protocols from being classified under regulations designed for centralized financial institutions. The SEC’s attempt to expand its regulatory reach was squashed.
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