The US Securities and Exchange Commission (SEC) scrapped several high-profile crypto-related proposals introduced under former Chair Gary Gensler.
This development marks a major policy shift under the agency’s new leadership, aligning with President Trump’s pro-crypto stance.
SEC Reverses Controversial Crypto Proposals from Gary Gensler’s Tenure
The SEC rolled back on the controversial Rule 3b-16 and the expanded Custody Rule. In hindsight, the digital asset industry fiercely opposed both of these directives.
The bone of contention for crypto market participants was that the rules threatened to stifle innovation and misclassify decentralized technologies. Against this backdrop, the crypto community, led by Coinbase CLO Paul Grewal, hailed the reversal.
The move presents a win for blockchain innovation and a repudiation of Gary Gensler’s aggressive regulatory approach.
Under the now-defunct Rule 3b-16, the SEC sought to redefine what constitutes an “exchange.” Success in this pursuit would bring DeFi platforms and decentralized protocols under the same regulatory framework as traditional national securities exchanges.
Another major rollback was the proposed Custody Rule expansion. It aimed to broaden the definition of “custody” to include nearly all client assets, including crypto. Further, this would require advisers to hold those assets with qualified custodians.
This rule raised significant alarm across the crypto sector, as most firms did not qualify under the proposed definitions. Therefore, they would have been compelled to mass restructure or exit the US market.
“The SEC just officially scrapped the expanded Custody Rule proposal and Rule 3b-16, plus other Gensler-era rules,” Crypto America podcast host Eleanor Terrett confirmed the agency’s retreat in a post.
The regulator also tossed out several compliance-heavy measures, including cybersecurity and ESG reporting requirements for public companies. The agency also scrapped enhanced oversight of security-based swaps and expanded registration mandates for crypto fund managers.
End of Bureaucratic Crackdown on Crypto?
This sweeping deregulation fits squarely into the broader policy agenda of the Trump administration. President Trump’s newly appointed SEC Chair, Paul Atkins, has signaled a more market-friendly tone.
“The prior US government administration discouraged Americans from participating in these market-based systems by asserting through lawsuits, speeches, regulation, and threatened regulatory action that participants and staking-as-a-service providers may be engaged in securities transactions,” Paul Atkins said.
Atkins builds on the groundwork laid by Commissioners Mark Uyeda and Hester Peirce, who now heads the agency’s newly formed Crypto Task Force.
The reversal also highlights a strategic regulatory pivot away from adversarial enforcement and toward constructive rulemaking.
Industry leaders argue that Gensler’s tenure was defined by regulatory overreach. The SEC often bypassed congressional intent and relied on vague legal interpretations to pressure crypto companies.
With the CLARITY Act advancing, many in Washington believe the rescinded rules had become redundant. The Act provides a clearer framework for classifying digital assets and delineates the roles of different regulatory bodies, making expansive SEC authority less necessary.
For Grewal and others advocating crypto innovation, Thursday’s rollback is a fundamental course correction. It suggests the US is reopening its doors to crypto builders rather than compelling them to look externally toward regions with a more favorable stance toward cryptocurrency.
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