SEC Withdraws Appeal in DeFi Dealer Classification Case

The U.S. Securities and Exchange Commission (SEC) has willingly withdrawn its appeal of a ruling that blocked its attempt to expand securities laws to cover decentralized finance (DeFi).

This development means the DeFi space might no longer be subjected to securities laws.

A Complete Victory for DeFi

In a February 19 motion filed with the U.S. Court of Appeals for the Fifth Circuit, the SEC stated its intention to “voluntarily dismiss this appeal.” The document also revealed that the move went unopposed.

Last month, the agency had appealed a November ruling by a Texas federal judge that favored crypto trade groups, the Blockchain Association and the Crypto Freedom Alliance of Texas.

The decision had prevented the SEC from implementing a proposed change to the definition of a dealer, which would have required all crypto liquidity providers and automated market makers with more than $50 million in capital to register with the Commission.

Crypto advocacy groups opposed the change, arguing it would impose unenforceable requirements on DeFi protocols. Such platforms often operate without centralized authority, making it difficult to comply with know your customer (KYC) and anti-money laundering (AML) regulations.

Blockchain Association CEO Kristin Smith commented on the development in a February 19 post on X, stating:

“Complete and total victory today in our case against the SEC over the dealer rule. The crypto industry can breathe a sigh of relief.”

The expanded definition of a dealer was first introduced a year ago. The financial watchdog had broadened the meaning to include principal-trading firms that use algorithmic and high-frequency trading strategies to offer services such as exchanges and alternative trading platforms.

Positive Shifts In the Crypto Industry

The head of the crypto lobbying group highlighted that with the final dismissal of the case and new leadership at the SEC, the industry was looking forward to productive discussions with the agency.

Following Gensler’s departure, U.S. President Donald Trump has overhauled the SEC with a focus on reducing crypto-related enforcement and litigation. In line with this, Trump previously appointed Mark Uyeda to lead the Commission in an acting capacity.

Under Uyeda’s leadership, the regulator has created a crypto task force headed by Commissioner Hester Peirce to establish a framework for digital assets.

The agency has also delayed or paused litigation against several crypto firms. Last week, Binance was granted a 60-day pause in its case with the SEC to assess regulatory developments. In January, Coinbase was also allowed to seek an appeal in its legal battle against the watchdog.