SEC Abandons 2022 Crypto ATS Proposal, Marking Regulatory Shift

Acting SEC Chairman Mark Uyeda has recently indicated a potential shift in the regulatory approach towards cryptocurrency by considering the abandonment of a controversial 2022 proposal. This proposal sought to classify certain cryptocurrency protocols as Alternative Trading Systems (ATS). The decision, announced during the Institute of International Bankers’ Annual Washington Conference, marks a significant departure from the SEC’s previous stance and reflects an evolving perspective on the digital asset market.

Uyeda’s directive to revisit the 2022 proposal underscores a growing understanding of blockchain technology and its unique characteristics. The original proposal, introduced under former Chairman Jay Clayton, aimed to expand the definition of “exchange” to include “communications protocols.” However, this expansion was criticized for its lack of clarity and for potentially subjecting a wide range of cryptocurrency protocols to SEC oversight without clear justification.

Uyeda’s assessment of the proposal highlights the regulatory overreach that critics have long argued against. He stated that the SEC’s attempt to link the regulation of Treasury markets with a heavy-handed approach to the crypto market was a mistake. This perspective aligns with the pushback from industry stakeholders who argued that applying the ATS framework to cryptocurrency protocols was both legally flawed and technologically misguided.

ConsenSys, a leading blockchain software firm, formally opposed the proposal, describing it as legally flawed and technologically misguided. They highlighted critical legal and factual errors in the SEC’s approach, stating that the amendments would subject blockchain-based systems to regulatory burdens that are often impossible to comply with, thereby throwing the broader blockchain ecosystem into regulatory uncertainty.

Coinbase’s Chief Legal Officer, Paul Grewal, also criticized the proposal, calling it irrational. He pointed out that the SEC failed to collect basic information and conduct any economic analysis about how the proposal would affect decentralized exchanges (DEXs). Even within the SEC, the proposal faced opposition from Commissioner Hester Peirce, who criticized its complexity and extensive scope, questioning whether such a wide-ranging proposal allowed for thorough and careful evaluation.

Uyeda’s actions signal a broader shift in the SEC’s stance on cryptocurrency regulation under the new administration. In recent weeks, the agency has made significant changes by rolling back key crypto-related policies. These include rescinding controversial accounting guidance, dropping enforcement actions against major industry players, and establishing a dedicated task force for digital assets. This policy reversal aligns