In a significant development for the cryptocurrency sector, the U.S. Securities and Exchange Commission (SEC) has formally withdrawn several proposed regulations that were designed to impose stricter controls over decentralized finance (DeFi) and the custody of digital assets. The retraction took place on a Thursday, as part of the SEC’s ongoing evaluation of its regulatory framework.
These proposals were introduced under the leadership of former SEC Chair Gary Gensler, whose strategies have often been labeled as 'regulation by enforcement.' One of the notable withdrawn measures included amendments to Exchange Act Rule 3b-16. This amendment aimed to broaden the definition of an exchange to incorporate DeFi platforms under the regulatory umbrella of national securities exchanges. Industry stakeholders had voiced significant criticism regarding this approach.
"The only way for the Commission to arrive at a valid regulatory approach to DeFi is to withdraw its proposed amendments and start again at square one: with a notice of proposed rulemaking that clearly describes its proposed regulatory approach, after genuine engagement with the DeFi industry," remarked policy experts at Paradigm. Their comments underscore the growing sentiment among industry players that any effective regulation must involve meaningful dialogue with the affected sectors.
In addition to the changes concerning DeFi, the SEC also withdrew a proposal that sought to expand existing custody rules for investment advisers to include stricter standards for holding cryptocurrency. This change would have mandated that investment advisers store crypto assets only with qualified custodians, thereby increasing protections for these assets. However, concerns emerged that this could further complicate banking relationships within the crypto industry.
The previous rule raised alarms about whether it would deter banks and financial institutions from engaging with crypto assets, limiting the avenues available for advisors to manage their clients' assets effectively. Many industry stakeholders were apprehensive that such regulatory shifts would create more barriers than protections.
In March 2025, the acting SEC Chair Mark Uyeda instructed staff to reexamine the proposed custody rules. This reconsideration came as part of a broader effort to align the SEC's regulatory posture with the evolving landscape of digital assets. Uyeda's directives reflected a shift towards a more balanced approach, acknowledging both the risks and opportunities that cryptocurrencies present.
As this regulatory landscape continues to shift under changing leadership within the SEC, industry experts are hopeful for a more collaborative framework moving forward. With the proposals now withdrawn, there are growing calls for a new regulatory outline that takes into account the unique nature of DeFi and digital assets.
The decision to rescind these proposals indicates a potential pivot at the SEC — one that seeks to engage more constructively with the cryptocurrency community. The complexities surrounding digital assets require nuanced understanding and consideration, particularly in a rapidly changing technological environment.
As the SEC grapples with its next steps, the question remains: what will the future regulations look like? Industry participants are eager to engage in constructive dialogue to shape a framework that supports innovation while addressing regulatory concerns. The outcome of these discussions could shape the trajectory of DeFi and crypto custody rules in the United States for years to come.