TLDR
- SEC voluntarily drops appeal in a case that would have forced DeFi protocols to register as securities dealers, marking a shift in the agency’s approach to crypto regulation
- Federal judge in Texas previously ruled that SEC exceeded its authority by trying to classify DeFi traders as financial brokers
- New Acting SEC Chair Mark Uyeda creates crypto task force led by Commissioner Hester Peirce, known as “Crypto Mom”
- Ongoing SEC cases against Binance and Coinbase are paused – Binance gets 60-day pause, Coinbase allowed to seek appeal
- Blockchain Association CEO calls dismissal a “major win” for digital assets industry, looks forward to more productive conversations with SEC
The Securities and Exchange Commission (SEC) withdrew its appeal on February 19, 2025, in a case that would have required decentralized finance (DeFi) protocols to register as securities dealers. The agency filed a four-page motion in the U.S. Court of Appeals for the Fifth Circuit to dismiss the appeal, a move that went unopposed by other parties.
The case began a year ago when the SEC attempted to expand its definition of “dealer” to include DeFi protocols. Under these changes, DeFi projects would have needed to register with the SEC as securities exchanges and brokers or face potential legal action.
In November, a federal judge in Texas ruled against the SEC’s expanded definition. U.S. District Judge Reed O’Connor found that the regulator had overstepped its authority by trying to treat DeFi traders as traditional financial brokers.
The lawsuit that led to this ruling came from two organizations: the Blockchain Association and the Crypto Freedom Alliance of Texas. They challenged the SEC’s modified rules, arguing that including DeFi in these regulations violated the Administrative Procedures Act (APA).
Judge O’Connor agreed with their arguments so strongly that she ordered the SEC to remove the crypto-related changes without requiring a trial. This decision protected DeFi projects from falling under regulations designed for traditional financial brokers.
1/ Today marks a complete victory for us – and the broader industry – in our lawsuit against the SEC over the dealer rule.
The SEC voluntarily dismissed its appeal of the lawsuit over the dealer rule brought by us and @CryptoFreedomTX.https://t.co/ajuJdrLOI4 pic.twitter.com/pbHClVefud
— Blockchain Association (@BlockchainAssn) February 19, 2025
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 started taking a different approach to crypto regulation.
One of Uyeda’s first moves was creating a crypto-focused task force. He appointed Commissioner Hester Peirce to lead this group. Peirce, who earned the nickname “Crypto Mom,” has consistently supported clear guidelines for digital assets.
SEC’s New Direction
The task force aims to develop better rules for the crypto industry. This represents a shift from the previous approach, which many crypto companies viewed as too strict.
Kristin Smith, CEO of the Blockchain Association, praised 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 while both sides watch regulatory developments.
A federal judge in Washington, D.C. recently granted a 60-day pause in the SEC’s case against Binance. This break lets both parties consider recent changes in crypto regulation.
In the Coinbase case, a New York federal judge allowed the exchange to seek an appeal. The judge decided that higher courts should weigh in on how securities laws apply to crypto, given conflicting rulings across different courts.
Commissioner Peirce had earlier warned about problems with the dealer rule changes. She said they would “distort market behavior and degrade market quality.” She now leads the agency’s efforts to create clearer rules for the industry.
The original dealer rule changes would have updated the Securities Exchange Act of 1934. Despite containing hundreds of pages, these modifications only mentioned “crypto” once, in a footnote.
Acting General Counsel Jeffrey B. Finnell and other SEC lawyers filed the motion to dismiss the appeal. The document stated that each side would pay their own legal costs.
