SEC Drops DeFi Appeal: A Win for Crypto Industry

The U.S. Securities and Exchange Commission (SEC) has abandoned its legal effort to expand its oversight of decentralized finance (DeFi) protocols. In a filing to the Fifth Circuit Appeals Court, the regulator announced its voluntary dismissal of an appeal against a lower court ruling that had blocked a new rule expanding the definition of "dealer" under securities law.

Last August, the SEC adopted new rules requiring crypto liquidity providers and automated market makers with over $50 million in capital to register with the SEC. This move was challenged by crypto advocacy groups, including the Blockchain Association and the Crypto Freedom Alliance of Texas, who argued that the rule would impose impossible compliance burdens on DeFi protocols.

In November, a Texas federal court judge sided with the crypto groups, striking down the SEC's "dealer" rule and determining that the securities agency had overstepped its authority. The SEC filed an appeal against the court's decision but has now decided to drop it, bringing the legal battle to an end.

Crypto community members celebrated the SEC's withdrawal, viewing it as a major win for the industry. The decision is expected to provide regulatory clarity for DeFi projects and foster continued growth in the sector. While the SEC's intentions might have been to protect investors, the crypto community argued that the proposed rule was a blunt instrument that would have done more harm than good.

The move is another clear sign of an ongoing shift in the SEC's approach to digital asset regulation. The dismissal comes shortly after leadership changes at the SEC, with Mark Uyeda now being Acting Chairman, replacing former Chair Gary Gensler. The SEC under President Trump is expected to take a more accommodating stance toward digital assets, moving away from the enforcement-heavy approach of recent years.

The SEC has already taken concrete steps to ease reporting requirements for firms holding crypto assets for platform users. Commissioner Hester Peirce, head of the SEC's newly formed Crypto Task Force, indicated last week that many meme coins likely fall outside the agency's jurisdiction.

Last week, the SEC met with representatives from Jito Labs and Multicoin Capital Management to discuss approaches to addressing issues related to the regulation of crypto assets, particularly the potential inclusion of staking functionality in exchange-traded products (ETPs). Yesterday, the SEC formally acknowledged a proposed rule change from CBOE BZX Exchange and 21Shares to enable staking on the