SEC Withdraws Appeal on Broker-Dealer Rule, Signals Regulatory Shift

Court Ruling and Industry Reaction

U.S. District Judge Reed O’Connor of the Northern District of Texas ruled that the SEC had exceeded its statutory authority with the rule, describing the agency’s approach as disconnected from U.S. securities law. The Blockchain Association and the Crypto Freedom Alliance of Texas argued that the rule would impose unworkable compliance burdens on DeFi protocols, which inherently lack central operators capable of enforcing stringent KYC and AML measures.

On February 19, the SEC filed a notice with the Fifth Circuit Court of Appeals to voluntarily dismiss the appeal, effectively ending the legal dispute. Kristin Smith, CEO of the Blockchain Association, welcomed the decision, calling it a turning point following former Chair Gary Gensler’s aggressive regulatory crackdown on crypto.

Regulatory Recalibration Under New Leadership

This development is part of a broader shift in Washington’s approach to cryptocurrency regulation. With a change in leadership—shifting from Gensler to a more measured approach under Acting Chair Mark Uyeda—the SEC is dialing back its enforcement efforts. Notably, other high-profile cases against crypto giants such as Binance and Coinbase have also been paused, reflecting a more cautious regulatory stance.