SEC Retreats: New Leadership Drops DeFi Appeal

The U.S. Securities and Exchange Commission (SEC) has withdrawn its appeal to expand its authority over the decentralized finance (DeFi) sector, marking a significant shift in the agency's stance under new leadership. The SEC sought to redefine the term "dealer" to include DeFi protocols, which would have forced projects to register as securities exchanges and brokers under strict oversight. However, the agency's move sparked legal action from two industry organizations, the Blockchain Association and the Crypto Freedom Alliance of Texas, who argued that the SEC's approach violated the Administrative Procedures Act (APA).

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. 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.

The decision to withdraw the appeal comes as part of a shift under new leadership. After former SEC Chair Gary Gensler's departure, Acting Chair Mark Uyeda has adopted a friendlier stance toward crypto. Uyeda will stay in charge until the Senate confirms Paul Atkins as permanent Chair under the Trump administration. This regulatory shift signals a potential thaw in the SEC's approach to the crypto industry, which has long been a source of tension between the agency and the blockchain community.