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The U.S. Securities and Exchange Commission (SEC) has officially withdrawn key regulatory proposals targeting decentralized finance (DeFi) platforms and crypto custody rules introduced during Gary Gensler’s tenure.
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This move signals a significant shift in regulatory approach, reflecting growing industry pushback and a more crypto-friendly stance under the current SEC leadership.
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According to COINOTAG, the withdrawal marks a pivotal moment for DeFi innovation, with experts emphasizing the need for collaborative regulation that balances investor protection and technological advancement.
SEC withdraws Gensler-era DeFi and custody rules, signaling regulatory shift and renewed focus on crypto innovation and self-custody protections.
SEC Withdraws Controversial DeFi and Custody Proposals, Easing Regulatory Pressure
The U.S. Securities and Exchange Commission’s recent decision to formally withdraw several high-profile rule proposals from the Gensler era represents a notable recalibration of crypto regulatory policy. Among the withdrawn measures was the proposal to expand the definition of an exchange under Rule 3b-16, which would have subjected decentralized finance (DeFi) platforms to the same stringent regulations as traditional national securities exchanges. This broadening of regulatory scope was met with intense opposition from the crypto community, which argued that such rules could stifle innovation and impose impractical compliance burdens on decentralized protocols.
Additionally, the SEC retracted the proposed mandate requiring investment advisors to custody crypto assets exclusively with qualified custodians. This rule raised concerns about limiting the number of financial institutions willing to engage with digital assets, potentially reducing market liquidity and accessibility. The formal withdrawal of these proposals, initially paused in March 2025 by acting Chair Mark Uyeda, reflects a growing recognition within the SEC that a more nuanced approach is necessary to accommodate the unique characteristics of crypto assets and DeFi ecosystems.
Industry Response and Implications for DeFi Regulation
Industry leaders and analysts have welcomed the SEC’s withdrawal as a positive development, emphasizing the importance of regulatory frameworks that foster innovation while safeguarding investors. Paradigm experts highlighted the need for the SEC to engage directly with the DeFi community to craft rules that are both effective and practical. The move away from Gensler’s “regulation by enforcement” approach, which many criticized for creating legal uncertainties, is seen as a step toward clearer and more collaborative regulatory policies.
Furthermore, the current SEC Chair Paul Atkins has publicly supported principles such as self-custody, describing it as an “American value” that should extend to digital assets. This stance contrasts with previous proposals and signals a more accommodating regulatory environment that could encourage broader adoption and development within the crypto sector.
Broader Regulatory Context and Future Outlook
The withdrawal of Gensler-era rules also includes the rescinding of regulations related to cybersecurity and Environmental, Social, and Governance (ESG) standards for investment companies. These moves align with the broader political shift following the election of a pro-crypto administration under President Donald Trump, which favors innovation-friendly policies. The SEC’s evolving approach underscores the dynamic nature of crypto regulation in the United States, balancing the need for investor protection with the imperative to support technological progress.
Market participants are now closely watching how the SEC will proceed with new rule-making efforts, particularly in areas such as DeFi governance, custody solutions, and market integrity. The emphasis appears to be shifting towards frameworks that encourage transparency and security without imposing overly restrictive mandates that could hinder growth.
Conclusion
The SEC’s formal withdrawal of Gensler-era DeFi and custody proposals marks a critical turning point in U.S. crypto regulation. By stepping back from aggressive enforcement-driven rules, the commission is opening the door to more balanced and collaborative regulatory strategies. This development not only alleviates immediate compliance pressures on DeFi platforms and crypto custodians but also signals a broader acceptance of self-custody and decentralized innovation as integral components of the digital asset ecosystem. Stakeholders should remain engaged with ongoing regulatory discussions to help shape policies that promote both security and innovation in the evolving crypto landscape.
