SEC Withdraws Gensler-Era Crypto Regulation Proposals Under New Leadership

The U.S. Securities and Exchange Commission has formally abandoned a controversial proposal to expand the definition of an "exchange" under Rule 3b-16, which WOULD have subjected DeFi protocols to securities regulations. The now-rescinded amendment sought to classify systems facilitating non-firm trading interest as exchanges, potentially capturing decentralized platforms.

Former SEC Chair Gary Gensler''s initiative faced fierce opposition from crypto innovators who argued the rules would stifle technological progress. Current Chair Paul Atkins has followed through on earlier signals from commissioner Mark Uyeda, who had recommended dropping the crypto-related provisions as they were originally designed for treasury market systems.

In a broader regulatory rollback, the SEC also withdrew its Safeguarding Advisory Client Assets proposal that would have mandated qualified custodians for all client holdings—including digital assets. This custody requirement had posed significant compliance challenges for crypto investment firms navigating the traditional financial framework.