SEC Withdraws Controversial DeFi, Crypto Custody Rules Under New Leadership

The U.S. Securities and Exchange Commission (SEC) has officially withdrawn several controversial rule proposals that were introduced during the tenure of former Chair Gary Gensler. These proposals aimed to subject decentralized finance (DeFi) platforms to stricter federal oversight and to narrow the rules governing the custody of crypto assets.

A notable proposal, released in April 2023, sought to expand the definition of an exchange under Rule 3b-16. If implemented, this would have required DeFi platforms to adhere to the same regulations as national securities exchanges. The crypto industry vehemently opposed this plan, with experts from Paradigm arguing that the SEC needed to rethink its approach and engage directly with the DeFi community.

Another significant proposal was to mandate that investment advisors hold crypto assets with qualified custodians. This raised concerns within the industry, as it could have limited the number of banks willing to handle digital assets. These proposals were initially put on hold in March 2025 by then-acting SEC Chair Mark Uyeda, following intense criticism. The commission has now formally withdrawn these proposals.

In addition to the DeFi and custody rules, the SEC has also withdrawn Gensler-era regulations on cybersecurity and Environmental, Social, and Governance (ESG) standards for investment companies. Gensler, who led the SEC from 2021 to January 2025, faced criticism for his approach of "regulation by enforcement," which many believed created a legal gray area for the crypto industry.

The withdrawal of these proposals comes after the election of pro-crypto President Donald Trump. The current SEC Chair, Paul Atkins, has taken a more accommodating stance towards DeFi, recently stating that self-custody is an "American value" that should apply to digital assets as well. This shift in policy reflects a broader change in the regulatory environment, moving away from the stringent oversight proposed under Gensler's leadership.