SEC Abandons Genslers DeFi Regulation Initiatives Amid Industry Backlash

The U.S. Securities and Exchange Commission (SEC) has officially withdrawn the proposed rules related to the DeFi sector and cryptocurrency custody put forth by former chairman Gary Gensler. This was reported by The Block.

Among the retracted proposals is the amendment project to rule 3b-16 of the Exchange Act submitted in April 2023. This initiative aimed to broaden the definition of «exchange» to extend «traditional» regulations to decentralized platforms. The proposal faced criticism from industry representatives.

Additionally, a project that strengthened custody requirements for cryptocurrency assets was also withdrawn. This regulation mandated that investment advisors use only qualified custodians and included extra protective measures. There were concerns in the industry that this would lead to a reduction in the number of banks willing to engage with digital assets.

Other withdrawn initiatives included enhanced cybersecurity requirements and mandates for the disclosure of ESG practices for investment firms.

Gensler led the SEC since 2021 until early 2025. His «regulation by enforcement» approach often drew significant criticism and created uncertainty within the crypto industry.

It’s worth noting that the current SEC chairman, Paul Atkins, recently expressed a new stance on non-custodial cryptocurrency storage, describing this right as a «fundamental American value.»