SEC Withdraws Lawsuit On DeFi Dealer Rule!

SEC withdraws appeal in case to classify DeFi projects as securities dealers. Is crypto regulation shifting?

SEC Withdraws Appeal on DeFi Projects as Securities Dealers

The Securities and Exchange Commission (SEC) has withdrawn its appeal in a case that would have required decentralized finance (DeFi) projects to register as securities dealers.

On February 19, 2025, the agency filed a four-page motion with the U.S. Court of Appeals for the Fifth Circuit, voluntarily dismissing the appeal without opposition from other parties.

The case began when the SEC sought to expand the definition of “dealer” to include DeFi protocols, which would have forced these projects to register with the SEC as securities exchanges and brokers. A federal judge in Texas ruled that the SEC had overstepped its authority by attempting to treat DeFi traders the same as traditional financial brokers.

The Blockchain Association and the Texas Crypto Freedom Alliance filed the lawsuit, arguing that the SEC’s amended rules violated the Administrative Procedures Act (APA). U.S. District Judge Reed O’Connor found their arguments compelling enough to order the SEC to remove the crypto-related changes without a trial.

The withdrawal comes as part of broader changes under new leadership at the SEC. Following Gary Gensler’s departure, Acting SEC Chair Mark Uyeda has taken steps to engage more closely with the crypto industry. One of his first actions was to create a crypto-focused task force led by Commissioner Hester Peirce.

The SEC’s withdrawal of its appeal signals a shift in its regulatory approach toward DeFi projects. The SEC had previously sought to subject DeFi projects to the same regulations as traditional financial brokers, but a federal judge in Texas rejected this move.

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This decision reflects the SEC’s efforts to develop more flexible and clearer regulations under its new leadership. Known as “Crypto Mom,” Commissioner Hester Peirce is focusing on providing clearer guidelines for the crypto industry. The change provides temporary clarity for DeFi projects while the SEC works on new rules.

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