SEC scraps Biden-era proposed crypto rules in sweeping regulatory reversal

The U.S. Securities and Exchange Commission (SEC) has abruptly withdrawn more than a dozen Biden-era proposed crypto rules.  These rules include two major regulations aimed at tightening oversight of decentralized finance (DeFi) and crypto custody.

The move indicates a dramatic pivot in the SEC’s approach to digital assets and could reshape the regulatory landscape for exchanges, investment advisers, and blockchain startups.

Biden-era proposed crypto rules dismantled in SEC overhaul

The SEC confirmed on Thursday it was rescinding multiple pending regulations introduced under former Chair Gary Gensler, effectively nullifying years of proposed crypto policies.

Among the axed proposals were Rule 3b-16—a controversial expansion of the “exchange” definition threatening DeFi platforms—and stricter custody requirements that would have forced investment firms to hold crypto with SEC-approved “qualified custodians.”

The Biden-era proposed crypto rules had drawn fierce backlash from the industry for potentially stifling innovation. With their repeal, the SEC signals a retreat from its aggressive stance under Gensler, though the agency left open the possibility of future rulemaking.

DeFi spared as SEC kills “exchange” definition expansion

The now-defunct Rule 3b-16 sought to classify DeFi protocols as securities exchanges by broadening regulatory language to include “communication protocols” matching buyers and sellers. Critics warned this could have forced decentralized platforms like Uniswap to register as exchanges or face penalties.

Coinbase’s chief legal officer, Paul Grewal, celebrated the reversal on X (formerly Twitter), posting:

“Down goes 3b-16, qualified custodian, and all the other unfinished Gensler rule proposals.”

The Biden-era proposed crypto rules had been a focal point of legal battles, with the SEC accused of overreach.

Crypto custody requirements loosened for investment firms

Another repealed proposal, the 2023 “Safeguarding Advisory Client Assets” rule, would have mandated advisers to store crypto exclusively with banks or broker-dealers meeting rigid custodial standards. Most crypto-native firms lacked “qualified custodian” status, risking mass client withdrawals.

The Biden-era proposed crypto rules on custody faced pushback for ignoring the unique technical challenges of securing digital assets. Their withdrawal grants temporary relief to firms like Grayscale and Fidelity, though the SEC may revisit the issue under new leadership.

Broader implications: ESG and cybersecurity rules also axed

Beyond crypto, the SEC scrapped rules targeting:

• Cybersecurity disclosures for funds and advisers (impacting crypto custodians).

• Position reporting for large security-based swaps (affecting crypto derivatives traders).

• ESG compliance for public companies (a Biden administration priority).

The sweeping rollback aligns with President Trump’s deregulation agenda, though the SEC emphasized it retains authority to propose updated rules.

Industry reacts: “A win for clarity”

Crypto advocates hailed the reversal of Biden-era proposed crypto rules as a step toward regulatory certainty.

“The SEC’s approach was untenable for decentralized technologies,” said Sheila Warren, CEO of the Crypto Council for Innovation. “This creates breathing room for constructive dialogue.”

However, skeptics warn the vacuum could invite risk. “Investor protections shouldn’t be collateral damage in political fights,” argued Dennis Kelleher of Better Markets.

What’s next for crypto regulation?

With the Biden-era proposed crypto rules shelved, attention turns to Congress, where bipartisan efforts like the FIT21 Act aim to define the SEC and CFTC’s roles in crypto oversight. Meanwhile, the SEC’s enforcement division remains active, pursuing high-profile cases against Coinbase and Binance.