In a landmark ruling, a U.S. federal judge has overturned the Securities and Exchange Commission’s (SEC) controversial broker-dealer rule, which had sought to redefine “brokers” to include liquidity providers and automated market makers managing over $50 million in capital. This rule, adopted in February 2024, had sparked significant backlash for imposing heavy regulatory burdens on decentralized cryptocurrency platforms.
U.S. District Judge Reed O’Connor ruled that the SEC had overstepped its authority, asserting, “The Court concludes that the SEC exceeded its statutory authority by enacting such a broad definition of dealer untethered from the text, history, and structure of the Exchange Act.” The ruling marks a significant victory for the crypto sector, which had opposed the rule’s potential to stifle innovation.
Marisa Tashman Coppel, head of legal at the Blockchain Association, hailed the decision as a “huge win” for the crypto industry. The rule had mandated that decentralized networks comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, which critics argued would be difficult or even impossible to implement for such platforms.
Even within the SEC, the rule had its detractors. Commissioner Mark Uyeda criticized the expanded “dealer” definition, warning of its excessive reach, while Hester Peirce—known as “Crypto Mom” for her support of the industry—also opposed the rule, claiming it exceeded the SEC’s regulatory mandate by targeting decentralized protocols.
In response to the SEC’s actions, advocacy groups like the Blockchain Association and the Crypto Freedom Alliance of Texas filed lawsuits in April, accusing the agency of overreach and stifling the growth of decentralized finance (DeFi) and blockchain-based projects in the U.S.
Despite the setback, the SEC still has the option to appeal the ruling to the 5th Circuit Court of Appeals, potentially prolonging the legal battle over the regulatory treatment of decentralized crypto platforms.
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