SEC Withdraws Gensler’s DeFi Regulation Initiatives

The U.S. Securities and Exchange Commission (SEC) has officially withdrawn rules proposed by former agency head Gary Gensler concerning the DeFi sector and crypto asset custody. This was reported by The Block.

Among the rejected proposals was an amendment project to Exchange Act Rule 3b-16, presented in April 2023. It aimed to broaden the definition of an “exchange” to apply “traditional” regulation to decentralized platforms. The initiative faced criticism from industry representatives.

“The only way to develop a viable approach to DeFi regulation is to withdraw the proposed amendments and start from scratch: with a rulemaking notice that clearly outlines the regulatory stance after real dialogue with the industry,” experts at Paradigm stated at the time.

Also withdrawn was a proposal to strengthen crypto asset custody requirements. It mandated investment advisers to use only qualified custodians and included additional protective measures. The industry feared this would reduce the number of banks willing to work with digital assets.

Other canceled initiatives included requirements to enhance cybersecurity and disclose information on ESG practices for investment companies.

Gensler led the SEC from 2021 until early 2025. His “regulation by enforcement” policy often drew widespread criticism and created uncertainty for the crypto industry.

Earlier, current Commission head Paul Atkins recently announced a new approach by the agency to non-custodial cryptocurrency storage. He described this right as a “fundamental American value.”