David Edwards
A significant change in the SEC’s stance on digital assets and decentralized finance (DeFi) has been signaled by the public retraction of several regulatory proposals that were put forth under the direction of former Chair Gary Gensler. A series of official notices detailing the withdrawals were released on Thursday.
The contentious April 2023 modification to Exchange Act Rule 3b-16, which attempted to reinterpret the phrase “exchange” to encompass DeFi platforms, was one of the withdrawn proposals. Participants in the cryptocurrency business strongly objected to the rule’s attempt to place decentralized trading platforms under the same regulatory umbrella as national securities exchanges.
The idea does not provide meaningful engagement with the DeFi sector, according to policy experts at digital asset investment firm Paradigm. “The only way for the Commission to arrive at a valid regulatory approach to DeFi is to withdraw its proposed amendments and start again at square one: with a notice of proposed rulemaking that clearly describes its proposed regulatory approach, after genuine engagement with the DeFi industry,” Paradigm argued at the time.
The SEC Lifts Advisor Crypto Custody Restrictions
A further proposal that would have greatly broadened the SEC’s custody rule and mandated that investment advisors only keep cryptocurrency assets with certified custodians while enforcing additional security measures was also withdrawn by the SEC. The proposed custody restrictions, according to critics, would have further isolated investors in digital assets from conventional financial infrastructure by limiting the number of institutions ready to offer crypto custodial services.
Acting SEC Chair Mark Uyeda asked staff to reevaluate the plan in March 2025 due to strong industry opposition, which led to the crypto custody rule being placed under review.
Retraction of Other Gensler-Era Proposals
Several additional Gensler-era initiatives, including as rules requiring improved cybersecurity risk management procedures and increased ESG disclosure requirements for investment firms, were abandoned in addition to the DeFi and custody standards.
Gensler, who oversaw the SEC from 2021 until his resignation in January 2025, had a “regulation by enforcement” approach that many found objectionable. During his tenure, enforcement activities occasionally took the place of explicit rulemaking, leaving the crypto industry with more legal uncertainty.
Changes in Policy Under the Pro-Crypto Administration
Following the election of President Donald Trump, who has adopted a noticeably more pro-digital asset sector position, the SEC reversed its approach, part of a larger reassessment of crypto regulation.
Paul Atkins, the current chair of the SEC, recently expressed his strong support for user autonomy and DeFi in digital asset management. “The right to self-custody is a foundational American value that should also be upheld in the digital realm,” Atkins stated, signaling an evolving regulatory framework that embraces rather than restricts decentralized financial innovation.
The agency’s most recent moves represent one of the biggest regulatory shifts in the U.S. crypto industry’s history, and they may pave the way for future rulemaking and industry participation that is more cooperative.
