SEC Withdraws DeFi, Custody Regulation Proposals

SEC Withdraws DeFi Proposal & Custody Rule Expansion

The SEC’s withdrawal signifies a reset in its regulatory approach, responsive to industry pushback, potentially easing compliance burdens and opening dialogue with innovators.

The withdrawal of key proposals coincides with the ongoing debate within the U.S. Securities and Exchange Commission about how to appropriately regulate decentralized finance sectors. Former SEC Chair Gary Gensler initially introduced these proposals, which faced criticism over potential impacts on crypto asset custody and investment practices.

Industry Reactions and Future Implications

Commissioners Hester Peirce and Mark Uyeda voiced opposition, citing concerns over stifling innovation. Uyeda emphasized the need for balanced oversight, stating:

“Past SEC approaches to DeFi discouraged entrepreneurs and lacked regulatory transparency… high-quality regulation takes time… The SEC should not refrain from engaging in oversight of novel areas simply because it involves thinking outside the existing framework.”

These comments underscore a shift in regulatory strategy. A broad withdrawal of these rules could alleviate compliance costs for investment advisors and expand the pool of crypto custodians. The proposal affected assets like ETH and BTC, raising concern about regulatory transparency and market accessibility.

The SEC’s decision aligns with Paradigm Policy Team’s stance , urging for a regulatory approach grounded in industry dialogue. Past attempts at regulation have historically affected tokens like UNI and COMP, reflecting sensitivity to regulatory changes.

Attention to on-chain financial data suggests possible improvements in market liquidity following this withdrawal. The impacts are expected to be positive, as more custodial solutions may emerge for digital assets, encouraging diverse market participation.