The U.S. Securities and Exchange Commission (SEC) has officially withdrawn several controversial rule proposals made during former Chair Gary Gensler’s term. These proposals were an attempt to make DeFi platforms fall under more strict federal oversight and narrow the rules on custody of crypto assets.
A significant proposal, released in April 2023, was to broaden the definition of an exchange under Rule 3b-16. Had it been enacted, it would have subjected decentralized finance (DeFi) platforms to the same regulations as national securities exchanges.
Source: U.S. Securities and Exchange Commission (SEC)
The crypto industry was strongly opposed to the plan, with Paradigm experts stating that the SEC needs to go back to the drawing board and directly consult with the DeFi community.
The other proposed rule was to compel investment advisors to custody crypto assets with qualified custodians. This sounded alarm bells throughout the industry because it had the potential to reduce the pool of banks that would deal with digital assets.
These proposals had already been put on hold in March 2025 by the then acting SEC Chair Mark Uyeda after facing heavy criticism. The commission has now formally withdrawn these proposals.
Other withdrawals consisted of Gensler-era regulations on cybersecurity and ESG (Environmental, Social, and Governance) standards on investment companies.
Gensler, who headed the SEC between 2021 and January 2025, was criticized due to his so-called regulation by enforcement, which, according to many, put the crypto industry in a legal gray area.
The change is following the election of pro-crypto President Donald Trump. The current SEC Chair, Paul Atkins, has been more accommodating towards DeFi, saying recently that self-custody is an “American value” that must extend to digital assets as well.
