SEC officially scraps Gary Gensler-era DeFi exchange, custody rule proposals

The Securities and Exchange Commission (SEC) has formally withdrawn several proposed rules introduced during former Chair Gary Gensler's leadership that sought to restrict crypto-related activities, according to official notices published Thursday.

These included proposed amendments to Exchange Act Rule 3b-16, issued in April 2023. The proposal sought to broaden the definition of an exchange, specifically to bring decentralized finance platforms under the regulation of national securities exchanges. It drew criticism from various industry players. 

"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," policy experts at Paradigm commented at the time .

Another rescinded proposal aimed to expand the current custody rule by requiring investment advisors to keep crypto with qualified custodians and by adding more protections for those assets. 

As the rule would have extended stricter custody rules to advisors with crypto assets, it raised concerns about whether it would further limit the number of banks willing to do business with the sector. 

In March 2025, then-Acting SEC Chair Mark Uyeda directed  agency staff to revisit the proposed rule following backlash.

Other withdrawals made public Thursday included several proposals made during Gensler's term, such as those mandating stronger cybersecurity risk management and ESG requirements for investment firms.

Gensler led the SEC from 2021 until his departure this January, employing a "regulation by enforcement" approach that drew criticism and often left the crypto industry grappling with legal uncertainty.

The commission began to shift away from its previously adverse stance on crypto following the election of pro-crypto President Donald Trump, actively working to address related issues.

SEC Chair Paul Atkins recently expressed support for DeFi, saying that the right to self-custody is a "foundational American value" that should also be upheld in the digital realm.