The U.S. Securities and Exchange Commission (SEC) has abandoned its legal effort to implement a rule that would have expanded its oversight of decentralized finance (DeFi).

In a filing to the Fifth Circuit Appeals Court, the regulator said it was voluntarily dismissing its appeal of a lower court ruling that had blocked the rule.

For context, last August, the SEC adopted new rules expanding the definition of “dealer” under securities law, requiring crypto liquidity providers and automated market makers with over $50 million in capital to register with the SEC.

Better All The Time

Following the SEC’s move, crypto advocacy groups, including the Blockchain Association and the Crypto Freedom Alliance of Texas in April filed a lawsuit in the Northern District of Texas, challenging the SEC’s rule.

These entities argued that the rule would have imposed impossible compliance burdens on DeFi protocols, many of which lack centralized authority and struggle with requirements like Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.

They contended that the SEC had exceeded its statutory authority and violated the Administrative Procedure Act (APA).

In November, a Texas federal court judge sided with the crypto groups, striking down the SEC’s “dealer” rule and determining that the securities agency had overstepped its authority.

Last month, the SEC filed an appeal against the court’s decision but has now decided to drop it, bringing the legal battle to an end.

“Complete and total victory today in our case against the SEC over the dealer rule,” exclaimed Blockchain Association CEO Kristin Smith in a post on X. “The crypto industry can breathe a sigh of relief.”

Buy Bye Hard Times

Crypto community members celebrated the SEC’s withdrawal, viewing it as another major win for the industry which has long faced overly burdensome regulation that could stifle innovation.

The decision is expected to provide regulatory clarity for DeFi projects and foster continued growth in the sector. While the SEC’s intentions might have been to protect investors, the crypto community argued that the proposed rule was a blunt instrument that would have done more harm than good.

The move is another clear sign of an ongoing shift in the SEC’s approach to digital asset regulation under President Donald Trump’s administration. The dismissal comes shortly after leadership changes at the SEC, with Mark Uyeda now being Acting Chairman, replacing former Chair Gary Gensler who just departed exactly a month ago.

The SEC under President Trump is expected to take a more accommodating stance toward digital assets, moving away from the enforcement-heavy approach of recent years.

The SEC has already taken concrete steps, including rescinding SAB 121 and issuing SAB 122 in its place, easing reporting requirements for firms holding crypto assets for platform users.

Commissioner Hester Peirce, head of the SEC’s newly formed Crypto Task Force, indicated last week that many meme coins likely fall outside the agency’s jurisdiction.

“Many of the meme coins that are out there probably do not have a home in the SEC under our current set of regulations,” Peirce told Bloomberg.

Commissioner Peirce currently leads the SEC’s Crypto Task Force, which aims to develop a comprehensive regulatory framework for crypto assets, focusing on clear guidelines and practical registration processes rather than retroactive enforcement.

Last week, the SEC met with representatives from Jito Labs and Multicoin Capital Management as part of the task force’s goal to establish clear criteria for crypto ETFs. The meeting focused on discussing approaches to addressing issues related to the regulation of crypto assets, particularly the potential inclusion of staking functionality in exchange-traded products (ETPs).

Yesterday, the SEC formally acknowledged a proposed rule change from CBOE BZX Exchange and 21Shares to enable staking on the 21Shares Core Ethereum ETF. While the acknowledgment does not guarantee a green light, it’s a positive development.

The SEC and major firms facing its lawsuits, like Binance and Coinbase, have agreed to a stay in proceedings.