TLDR:
- The SEC has voluntarily withdrawn its appeal in a case that would have classified DeFi projects as securities dealers, marking a shift in the agency’s approach to crypto regulation
- New Acting SEC Chair Mark Uyeda has established a crypto task force led by Commissioner Hester Peirce (“Crypto Mom”) to develop clearer industry guidelines
- The original ruling by Judge Reed O’Connor found that the SEC’s attempt to redefine DeFi traders as financial brokers was unlawful
- Major enforcement cases against Binance and Coinbase are currently paused as regulatory developments unfold
- The withdrawal suggests a more collaborative approach to crypto regulation under new SEC leadership
The Securities and Exchange Commission (SEC) has withdrawn its appeal in a case that would have required decentralized finance (DeFi) projects to register as securities dealers.
The agency filed a four-page motion with the U.S. Court of Appeals for the Fifth Circuit on February 19, 2025, voluntarily dismissing the appeal without opposition from other parties.
The case began when the SEC attempted to broaden the definition of “dealer” to include DeFi protocols, which would have forced these projects to register with the SEC as securities exchanges and brokers. A federal judge in Texas ruled against the SEC, finding that the agency had exceeded its authority by trying to treat DeFi traders the same as traditional financial brokers.
The Blockchain Association and the Crypto Freedom Alliance of Texas initially filed the lawsuit, arguing that the SEC’s modified rules violated the Administrative Procedures Act (APA). U.S. District Judge Reed O’Connor found their arguments compelling enough to order the SEC to remove the crypto-related changes without requiring a trial.
The withdrawal comes as part of broader changes at the SEC under new leadership. Following Gary Gensler’s departure, Acting SEC Chair Mark Uyeda has taken steps to work more closely with the crypto industry. One of his first actions was creating a crypto-focused task force led by Commissioner Hester Peirce.
Crypto mom
Peirce, known in the industry as “Crypto Mom,” had previously warned about problems with the dealer rule changes. She stated they would “distort market behavior and degrade market quality.” In her new role, she leads the agency’s efforts to create clearer guidelines for the crypto industry.
The original dealer rule changes would have updated the Securities Exchange Act of 1934. Despite the extensive documentation, the word “crypto” appeared only once in the hundreds of pages of modifications, relegated to a footnote.
Kristin Smith, CEO of the Blockchain Association, welcomed the SEC’s decision. “We first brought our lawsuit against the SEC to challenge the agency’s unlawful power grab,” she said. “With new leadership at the agency leading to today’s final dismissal, we’re looking forward to productive conversations between industry and the SEC moving forward.”
The SEC’s enforcement actions against major crypto exchanges have also slowed. Cases filed in 2023 against Binance and Coinbase are currently paused as both sides monitor regulatory developments. A federal judge in Washington, D.C., granted Binance and the SEC a 60-day pause in their legal proceedings.
In the Coinbase case, a federal judge in New York allowed the exchange to seek an appeal. The judge determined that higher courts should weigh in on how securities laws apply to crypto, particularly given different rulings across courts.
The motion to dismiss the appeal was filed by Acting General Counsel Jeffrey B. Finnell and other SEC lawyers. According to the document, each party will bear its own legal costs.
The withdrawal represents a departure from the SEC’s previous regulatory approach under former Chair Gary Gensler. Under his leadership, the agency took a more aggressive stance toward crypto regulation, including filing cases against major exchanges.
Commissioner Peirce’s leadership of the new crypto task force suggests a shift toward developing clearer rules for the industry. This marks a change from the previous approach, which many in the crypto industry viewed as too restrictive.
The decision affects the broader regulatory landscape for DeFi projects, which can now operate without immediate concern about being classified as securities dealers. This provides temporary clarity for DeFi protocols while the SEC develops new guidelines.
Binance’s case received a 60-day pause from a federal judge in Washington, D.C., allowing both parties to assess recent regulatory changes. This pause came as part of the broader regulatory shifts occurring under the new SEC leadership.
The SEC’s voluntary dismissal was filed without any conditions or modifications, indicating a clean break from its previous position on DeFi dealer classification. According to court documents, the dismissal was processed without any opposition from other parties involved in the case.
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