Biden administration abolishes contentious regulations aiming at Decentralized Finance (DeFi) systems and cryptocurrency custodians under his presidency.

Revamped Write-up on SEC's Shift in Crypto Oversight

In a dramatic shift from Biden-era policies, the U.S. Securities and Exchange Commission (SEC) has axed crucial measures concerning crypto custody and decentralized exchanges. This move marks a significant step forward in the SEC's ongoing efforts to redefine its stance on digital assets.

On a thunderous Thursday, the commission formally reversed 14 proposed rules—originally rolled out between March 2022 to November 2023—including regulations designed to broaden the regulatory oversight of digital assets. The SEC's statement made it clear they have no plans to implement final rules on these issues.

Among the abandoned rules was a proposed amendment to Rule 3b-16 under the Exchange Act. Originally introduced in March 2022, this amendment aimed to reclassify what constitutes an "exchange" under federal securities laws. The proposed change would have ensnared communication systems facilitating trading in crypto and decentralized finance protocols.

Critics cautioned that the language in Rule 3b-16 could have labeled many DeFi platforms as regulated securities exchanges, even if they merely offered platform interaction for buyers and sellers without direct intermediaries.

Additionally, the proposed Safeguarding Advisory Client Assets rule—introduced in March 2023—aimed to tighten custody requirements for registered investment advisers. This rule would have mandated that all client assets, including crypto, be held with a "qualified custodian." Since most crypto-native custody providers failed to meet the proposed definition, there were concerns about limited options or advisers being forced out of digital asset markets entirely.

This rollback signifies a broader reorientation within the SEC. Under the Trump administration, the commission has migrated away from enforcement-led policy, favoring a more constructive regulatory stance. spearheading this change is SEC Chair Paul Atkins, a former commissioner and long-standing advocate of minimal government intervention. Since taking office in April, Atkins has directed the agency to abandon enforcement-led strategies in favor of more innovation-friendly policies.

As part of this overhaul, the SEC established a new Digital Assets Task Force to rethink its approach to crypto oversight. Within weeks, the task force moved to close several high-profile investigations, including cases involving Coinbase, Kraken, ConsenSys, Yuga Labs, and OpenSea, among others.

Crypto-Regulatory Landscape in a Nutshell

Crypto Asset Custody for Broker-Dealers and Transfer Agents (May 2025): The SEC issued guidance through FAQs for broker-dealers and transfer agents dealing with crypto assets, clarifying existing financial responsibility rules and easing restrictions that previously impeded broker-dealers' ability to custody both securities and non-security crypto assets for customers.
Shift from Enforcement to Policy Clarity: The SEC is steering away from ad hoc regulation by enforcement toward clearer policymaking, aiming to establish a coherent regulatory regime for crypto assets.
Decentralized Exchanges and DeFi Platforms (Current Status): While the SEC has yet to issue specific regulations tailored to decentralized exchanges (DEXs) or DeFi platforms, recent guidance focuses on the classification of tokens as securities.
Continued Uncertainty and Regulatory Tensions: Despite efforts toward clarity, there remains significant ambiguity and inconsistency in how certain crypto assets are treated. The SEC’s recent actions and staff statements have sometimes contradicted each other, leaving industry participants in a state of confusion about the regulatory status of specific tokens.

The SEC's revised stance on digital assets now excludes rules related to crypto custody and decentralized exchanges that were proposed between March 2022 to November 2023.
Rule 3b-16 under the Exchange Act, initially introduced in March 2022, aimed to reclassify what constitutes an "exchange" and potentially ensnare DeFi platforms as regulated securities exchanges.
The proposed Safeguarding Advisory Client Assets rule, introduced in March 2023, aimed to tighten custody requirements for registered investment advisers, potentially limiting options or forcing advisers out of digital asset markets.
In a move towards more innovation-friendly policies, the SEC has established a Digital Assets Task Force to rethink its approach to crypto oversight and has closed investigations involving Coinbase, Kraken, ConsenSys, Yuga Labs, and OpenSea, among others.
By May 2025, the SEC will provide guidance for broker-dealers and transfer agents dealing with crypto assets, easing restrictions and clarifying existing financial responsibility rules.
Despite efforts towards greater regulatory clarity, there remains ambiguity and inconsistency in how certain crypto assets are treated, as the SEC's recent actions and staff statements have sometimes contradicted each other, leaving industry participants in a state of confusion about the regulatory status of specific tokens.

Biden administration abolishes contentious regulations aiming at Decentralized Finance (DeFi) systems and cryptocurrency custodians under his presidency.