On February 19, the U.S. Securities and Exchange Commission (SEC) dropped its appeal against a federal court ruling that struck down its controversial broker-dealer rule. This marks a significant shift in the SEC’s stance on crypto regulations.
However, the SEC rule faced pushback from crypto industry groups, who argued that it imposed unrealistic compliance burdens on platforms lacking central operators.
In February 2024, the SEC introduced a rule classifying decentralized finance (DeFi) platforms and crypto entities with over $50 million in capital as brokers and dealers. These entities would be required to comply with stringent registration processes.
The judge stated that the SEC’s SEC rule was “untethered” from U.S. securities law and could potentially harm the growing DeFi sector by imposing compliance requirements designed for traditional financial institutions.
In November 2024, U.S. District Judge Reed O’Connor of the Northern District of Texas ruled that the SEC had exceeded its statutory authority in attempting to enforce the rule.
Many industry leaders believe the rule would stifle innovation by imposing difficult requirements for decentralized platforms.
The cryptocurrency industry approved the SEC’s decision to drop its appeal. The industry had expressed concerns over the regulatory burden that the SEC rule could place on DeFi platforms.
Her comments reflect a growing sentiment within the crypto regulations community that the SEC had overreached in its efforts to regulate decentralized platforms.
The decision to drop the SEC appeal also coincides with a shift in the SEC’s leadership. Under former Chairman Gary Gensler, the SEC aggressively pursued crypto regulations, including high-profile cases against major crypto firms.
Hester Peirce, an SEC commissioner, described the rule as an “unlawful power grab” and criticized the agency’s attempt to expand its jurisdiction beyond what was authorized by law.