Key takeaways
- In a major policy reversal, the SEC has scrapped rules targeting decentralized finance (DeFi) platforms and crypto custodians, marking a break from the aggressive regulatory approach.
- A controversial proposal to redefine “exchange” under the Exchange Act to include DeFi platforms has been withdrawn after strong industry backlash.
- Another rescinded rule would have required investment advisers to store crypto with qualified custodians, which critics argued could shrink banking options for crypto firms and increase compliance burden.
- In addition to the crypto-specific proposals, the SEC also rolled back regulations from the Gensler era related to cybersecurity risk management and Environmental, Social, and Governance (ESG) disclosures for investment firms.
- After Gensler’s departure in January 2025, the SEC has been reversing its previous hardline stance and adopting a more industry-engaged regulatory approach.
Agency Takes Back Controversial Rules
In a dramatic reversal that underscores a seismic shift in US crypto policy, the Securities and Exchange Commission (SEC) has formally withdrawn several high-profile proposals that would have imposed sweeping restrictions on decentralized finance (DeFi) platforms and digital asset custodians. The move reflects a broader strategic pivot under the new leadership, signaling a regulatory reset more aligned with innovation than enforcement.
Source: sec.gov
Gensler-Era Proposals Scrapped as New Chair Charts A Different Course
The SEC scrapped rules that were originally championed by former Chair Gary Gensler. This marks a decisive end to a nearly two-year regulatory battle. Chief among the abandoned initiatives were proposed amendments to Exchange Act Rule 3b-16, which aimed to treat DeFi platforms like traditional securities exchanges, subjecting them to extensive compliance obligations.
Industry players such as Paradigm and the Blockchain Association had fiercely criticized the proposed frameworks, arguing they stifled innovation and extended outdated financial rules to decentralized systems without proper consultation.
Custody Rule Withdrawal Eases Tensions with Banks
Another significant rollback concerned proposed custody regulations that would have required registered investment advisers to hold crypto assets exclusively with “qualified custodians.”
The rule faced strong opposition from both the crypto industry and parts of the traditional banking sector, with critics warning it could further restrict access to essential banking services for digital asset firms.
“The custody proposal risked freezing banks out of the crypto economy altogether,” said Sheila Warren, CEO of the Crypto Council for Innovation. “It was a blunt tool for a nuanced challenge.”
Cybersecurity and ESG Rules Also Rolled Back
The regulatory rollback is not confined to crypto. The SEC also withdrew proposed mandates on cybersecurity risk governance and ESG disclosures for investment firms. All were introduced during Gensler’s tenure and faced pushback from conservative lawmakers and segments of the financial industry that viewed them as regulatory overreach.
Political Winds Shift as Pro-Crypto Leadership Takes the Helm
This broad retreat coincides with a changed political landscape. The return of Donald Trump to the White House and the appointment of Paul Atkins as SEC Chair have brought a markedly different tone to the financial regulations.
This shift marks a stark contrast to the Gensler-era philosophy of “regulation by enforcement,” where the SEC relied on litigation rather than proactive policymaking to govern the space.
Industry Welcomes Move but Seeks Long-Term Clarity
Crypto advocates have greeted the withdrawals as a long-awaited course correction. But they warn that uncertainty remains without a replacement regulatory roadmap. “The rules were unworkable, but now there’s a vacuum,” said Kristin Smith, executive director of the Blockchain Association. “We need thoughtful, bespoke regulation.”
The withdrawal creates a rare window for collaborative policymaking, with regulators and industry stakeholders crafting frameworks that balance investor protection with technological innovation.
The SEC’s move to unwind years of regulatory development reflects a broader recognition: applying traditional financial rules to decentralized technology isn’t always a good step. While the retreat eases immediate fears, it also places pressure on the agency to articulate a clearer, future-forward strategy.
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