The Securities and Exchange Commission (SEC) has abandoned its appeal in a closely watched case over broker-dealer rules, effectively ending its attempt to expand jurisdiction over decentralized finance (DeFi) platforms. The decision follows a Texas federal court ruling that blocked the agency’s proposed regulatory changes, which crypto industry groups had strongly opposed.
In a brief Feb. 19 filing to the Fifth Circuit Court of Appeals, the SEC stated it moved “to voluntarily dismiss this appeal,” a request that went unopposed. The agency had initially filed the appeal in January, just before former SEC Chair Gary Gensler stepped down.
The original lawsuit was brought by the Blockchain Association and the Crypto Freedom Alliance of Texas, challenging the SEC’s attempt to broaden the definition of a dealer. Under the proposed rule, all crypto liquidity providers and automated market makers with more than $50 million in capital would have been required to register with the SEC.
Judge Rejects SEC Overreach
Texas District Court Judge Reed O’Connor struck down the SEC’s proposal in November, ruling that the agency had exceeded its statutory authority. He stated that the rule would have imposed regulatory requirements on decentralized platforms that have no central authority, making compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) laws practically impossible.
Crypto advocacy groups argued the SEC’s proposal was an attempt to regulate DeFi through traditional frameworks ill-suited for decentralized protocols. The lawsuit, initially filed in April, was seen as a key test of the SEC’s power to police the crypto industry beyond centralized exchanges.
Following the SEC’s withdrawal, Kristin Smith, CEO of the Blockchain Association, celebrated the decision.
“Complete and total victory today in our case against the SEC over the dealer rule,” she wrote in a Feb. 19 post on X. “The crypto industry can breathe a sigh of relief.”
Regulatory Shift Under Trump Administration
The SEC’s retreat comes amid broader regulatory shifts under President Donald Trump’s administration. After Gensler’s departure, Trump tapped acting chair Mark Uyeda to lead the agency, with Paul Atkins awaiting congressional confirmation as his successor.
Under Uyeda’s leadership, the SEC has created a Crypto Task Force headed by Commissioner Hester Peirce, a long-time advocate for digital assets. The task force’s mandate is to develop a clearer framework for crypto regulation, a stark contrast to the enforcement-heavy approach under Gensler.
The agency has also slowed or paused several high-profile enforcement actions against crypto firms, suggesting a reassessment of cases initiated under Gensler. According to reports, the SEC is halting lawsuits with imminent deadlines while awaiting recommendations from the Crypto Task Force.
