The U.S. Securities and Exchange Commission (SEC) has voluntarily withdrawn its appeal against a Texas federal court ruling that struck down its broker-dealer rule, which sought to expand the agency’s regulatory reach over decentralized finance (DeFi) platforms.
The SEC initially appealed the ruling after U.S. District Judge Reed O’Connor of the Northern District of Texas found that the agency had “exceeded its statutory authority” with the proposed regulation. The policy, finalized in February 2024, aimed to classify DeFi platforms, liquidity providers, and automated market makers with over $50 million in capital as dealers, subjecting them to mandatory registration requirements.
Federal Court Ruling and Industry Opposition
O’Connor ruled that the SEC’s interpretation was “untethered” from U.S. securities law, siding with industry groups that argued the regulation would impose unworkable compliance burdens on DeFi protocols. The Blockchain Association and the Crypto Freedom Alliance of Texas contended that the rule failed to account for the decentralized nature of DeFi platforms, which lack central operators capable of enforcing Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements.
On February 19, the SEC filed a notice with the Fifth Circuit Court of Appeals, stating its intent to “voluntarily dismiss this appeal,” bringing the legal dispute to a close.
Industry Reaction and Policy Shift
Kristin Smith, CEO of the Blockchain Association, welcomed the SEC’s decision, calling it a major victory for the industry and a turning point for the agency. She described the broker-dealer rule as an “unlawful power grab” that attempted to redefine the SEC’s statutory authority without proper justification.
The SEC’s withdrawal signals a broader shift in Washington’s regulatory stance on crypto. Following former SEC Chair Gary Gensler’s departure, the agency has taken a more measured approach under Acting Chair Mark Uyeda. President Donald Trump has also refocused the SEC’s priorities, pulling back from aggressive enforcement actions that characterized Gensler’s tenure.
Broader Implications for Crypto Regulation
The broker-dealer rule is not the only enforcement initiative facing setbacks. Several high-profile cases against major crypto firms, including Binance and Coinbase, have reportedly been put on pause. The SEC’s decision to drop the appeal reflects a recalibration of its crypto oversight strategy, signaling potential regulatory relief for the industry.
While challenges remain, the SEC’s retreat on this key rule marks a significant win for the crypto sector, reinforcing the need for balanced regulation that aligns with the decentralized nature of digital assets.
