The United States Securities and Exchange Commission has recently made a significant decision to withdraw its appeal against a Texas federal court ruling that invalidated its broker-dealer rule. This rule, which was finalized in February 2024, aimed to expand the SEC’s oversight by classifying decentralized finance platforms, liquidity providers, and automated market makers with over $50 million in capital as dealers, subjecting them to registration requirements.
U.S. District Judge Reed O’Connor of the Northern District of Texas ruled that the SEC had overstepped its statutory authority with this rule, stating that it was “untethered” from U.S. securities law. Industry groups, including the Blockchain Association and the Crypto Freedom Alliance of Texas, challenged the regulation, arguing that it would impose unworkable compliance burdens on DeFi protocols that lack central operators capable of enforcing Know Your Customer and Anti-Money Laundering requirements.
Following this ruling, the SEC filed a notice with the Fifth Circuit Court of Appeals on Feb. 19 to voluntarily dismiss the appeal, effectively bringing the legal dispute to a close. Kristin Smith, CEO of the Blockchain Association, praised the SEC’s decision, calling it a pivotal moment for the agency after former Chair Gary Gensler’s regulatory crackdown on crypto. She criticized the broker-dealer rule as an “unlawful power grab” that sought to redefine the agency’s authority without proper justification.
This retreat by the SEC marks a shift in Washington’s approach to crypto regulation. With Gensler no longer in charge, the agency has undergone a significant change in direction under new leadership. Acting Chair Mark Uyeda has been steering the SEC towards a more measured approach, moving away from the aggressive crackdowns seen during Gensler’s tenure.
In addition to the withdrawal of the broker-dealer rule appeal, the SEC has also put several high-profile enforcement cases against prominent crypto firms like Binance and Coinbase on hold. This shift in approach signals a more balanced and considered stance towards crypto regulation, reflecting a changing landscape within the agency.