The U.S. Securities and Exchange Commission (SEC) has rescinded over a dozen proposed rules introduced during the Biden administration, including two significant crypto-related proposals targeting decentralized finance (DeFi) protocols and digital asset custody standards. This move, as the SEC withdraws Biden-era crypto rules, aligns with President Donald Trump’s broader agenda of deregulating both traditional financial markets and the cryptocurrency sector.
In an announcement on Thursday, the SEC stated that it was “withdrawing certain notices of proposed rulemaking” issued between March 2022 and November 2023 under former Chair Gary Gensler. The agency clarified that it does not intend to finalize these proposals but may revisit them in future regulatory actions if circumstances change.
This decision marks a pivotal moment for the crypto industry, as it removes regulatory hurdles that could have significantly impacted DeFi platforms, crypto exchanges, and custody providers.
Key Crypto-Related Rules Rescinded
1. Rule 3b-16: Expanded Definition of “Exchange”
One of the most notable rules withdrawn by the SEC was Rule 3b-16, which sought to broaden the definition of “exchange” under the Exchange Act. The proposed amendment aimed to include decentralized finance (DeFi) protocols and systems using non-firm trading interest and communication protocols to connect buyers and sellers of securities.
If implemented, this rule could have classified many DeFi platforms as securities exchanges, subjecting them to stringent SEC oversight. The SEC first published this proposal in March 2022, but it faced criticism from industry stakeholders who argued that it would stifle innovation in the blockchain space.
In March 2024, then-acting SEC Chair Mark Uyeda suggested abandoning the rule change, signaling a shift toward a more industry-friendly approach.
2. Crypto Custody Rule: Safeguarding Advisory Client Assets
The SEC also withdrew a proposed rule from March 2023 that would have tightened custody requirements for digital assets. Known as the Safeguarding Advisory Client Assets rule, it aimed to expand existing custody rules under the Investment Advisers Act of 1940 to explicitly cover digital assets.
Under the proposal, investment advisers would have been required to hold all client assets, including cryptocurrencies, with a “qualified custodian ”—typically regulated banks or broker-dealers. However, most crypto exchanges and wallet providers do not meet the definition of qualified custodians, potentially forcing advisers to exit the space or switch providers.
Acting Chair Uyeda had previously requested staff to reconsider withdrawing this rule, citing concerns about its feasibility and impact on the crypto ecosystem.
Other Rules Rescinded
In addition to the crypto-specific proposals, the SEC withdrew several other rules introduced under the Biden administration, including:
- Cybersecurity Risk Management and Reporting Rules: These would have imposed stricter cybersecurity standards on investment advisers and funds, affecting crypto fund managers and digital asset custodians.
- Position Reporting for Large Security-Based Swaps: This rule could have impacted entities with significant exposure to crypto derivatives.
- Enhanced ESG Reporting Requirements: Public companies would have been required to disclose environmental, social, and governance (ESG) metrics, a move criticized by some as overly burdensome.
Industry Reaction
The withdrawal of these rules has been welcomed by key players in the crypto industry. Paul Grewal, Chief Legal Officer at Coinbase, celebrated the decision on X (formerly Twitter), stating:
Industry advocates argue that these rollbacks remove unnecessary barriers to innovation, particularly for DeFi platforms and crypto custody providers. By eliminating rules like Rule 3b-16, the SEC avoids imposing rigid definitions that could have stifled emerging technologies.
However, critics warn that the lack of regulation may expose investors to risks, particularly in an industry known for its volatility and susceptibility to fraud.
Broader Implications of the Rollback
The SEC’s decision reflects President Donald Trump’s promise to reduce regulatory burdens on businesses, including those operating in the crypto space. This move aligns with his administration’s focus on fostering innovation and reducing government intervention in rapidly evolving industries.
For the crypto sector, the rollback provides much-needed breathing room, allowing companies to operate without the looming threat of stringent regulations. However, it also raises questions about how the SEC plans to balance investor protection with innovation in the long term.
While the withdrawal of these rules signals a temporary reprieve, industry participants should remain vigilant. The SEC has indicated that it may propose new rules in the future, suggesting that regulatory scrutiny is far from over.
Final Thoughts
The SEC’s decision to rescind over a dozen Biden-era rules, including those targeting DeFi and digital asset custody, marks a significant shift in the regulatory landscape for cryptocurrencies. While the move has been celebrated by industry leaders, it underscores the ongoing tension between fostering innovation and ensuring investor protection.
As the crypto sector continues to evolve, stakeholders must engage with regulators to advocate for balanced policies that support growth while addressing legitimate concerns. For now, the rollback represents a win for the industry—but the debate over crypto regulation is far from settled.
