Green light for DeFi in the US? SEC backs down

On Feb. 19, the U.S. Securities and Exchange Commission (SEC) withdrew its appeal of an earlier ruling. That ruling prevented the regulator from extending existing securities laws to users and projects in the DeFi sector.

In a four-page petition, filed with the U.S. Court of Appeals for the Fifth Circuit, the SEC stated that it would consider the appeal "voluntarily wants to withdraw". No objection followed this.

Judge: SEC exceeds its powers

In November, a federal judge in Texas ruled that the SEC exceeded its authority by modifying the legal definition of "trader." The judge determined that the proposed changes were unlawful because they equated DeFi traders with traditional financial brokers.

The decision was considered a major victory by the crypto world. Kristin Smith, CEO of the Blockchain Association, called the SEC's voluntary withdrawal of the appeal "a major victory for the digital asset industry."

"We initiated our lawsuit against the SEC to challenge an unlawful expansion of power by the regulator," Smith said. "With the SEC's new direction leading to this final repeal, we look forward to productive conversations between the industry and the regulator in the future."

DeFi protocols under pressure

The original change to the "dealer" definition, proposed over a year ago, would have required DeFi protocols to register as stock exchanges and brokers with the SEC, or face legal risk.

SEC Commissioner Hester Peirce, an outspoken supporter of crypto and head of the new crypto task force under Trump, warned at the time that the regulatory tweak would "distort market behavior and worsen the quality of the market."

With the recent decision, the SEC appears more cautious in its approach to DeFi for now, which is seen as a positive development for the industry.