The US Securities and Exchange Commission (SEC) has abandoned its appeal in a case that sought to expand the definition of a dealer, a move widely viewed as a threat to decentralized finance (DeFi) platforms.
In a filing to the Fifth Circuit Appeals Court on February 19, the SEC stated its decision to “voluntarily dismiss this appeal,” a motion that went unopposed. The withdrawal effectively ends a legal fight stemming from a lawsuit filed in April by the Blockchain Association and the Crypto Freedom Alliance of Texas.
The legal dispute originated from the SEC’s proposed rule change that sought to redefine what constitutes a dealer, potentially subjecting crypto liquidity providers and automated market makers with over $50 million in capital to SEC registration. Critics argued that this regulation would impose unrealistic compliance demands on DeFi protocols, which operate without centralized oversight and struggle to implement Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements.
Last November, Texas District Court Judge Reed O’Connor ruled against the SEC, stating that the agency had “exceeded its statutory authority by enacting such a broad definition of dealer.” The SEC’s decision to abandon the appeal cements that ruling.
“Complete and total victory today in our case against the SEC over the dealer rule,” Blockchain Association CEO Kristin Smith said in a February 19 X post. “The crypto industry can breathe a sigh of relief.”
The move comes amid sweeping changes at the SEC following the departure of former Chair Gary Gensler. Under the Trump administration, acting SEC Chair Mark Uyeda has spearheaded a shift away from aggressive crypto enforcement, pausing or delaying lawsuits initiated under Gensler’s leadership. Meanwhile, the newly formed Crypto Task Force, led by Commissioner Hester Peirce, is working to establish a clearer regulatory framework for digital assets.
Trump’s nominee to lead the SEC, Paul Atkins, is currently undergoing congressional approval, and the agency appears to be taking a more measured approach to crypto regulation in the interim.