A federal judge in Texas dealt a decisive blow to the U.S. Securities and Exchange Commission’s crypto policy on Thursday, ruling that the agency’s expansion of an existing securities law to apply to decentralized finance (DeFi) users and projects was unlawful and in excess of the regulator’s authority.
Judge Reed O’Connor granted summary judgment to the Blockchain Association, a crypto lobbying group that sued the SEC in April over the agency’s expansion of the legal definition of the word “dealer” to encompass DeFi protocols and transactions.
DeFi is a catch-all term that describes non-custodial crypto applications on networks such as Ethereum and Solana that allow for traders to buy, sell, loan, and borrow crypto assets without third-party intermediaries, such as banks. The SEC’s interpretation of the dealer rule would have required DeFi projects and users to register as securities exchanges and brokers—the same standards applied to stock exchanges and Wall Street traders.
Judge O’Connor determined today not just that the Blockchain Association's lawsuit had merits—but that its argument was so compelling that the issue could be settled without proceeding to a trial.
The SEC must vacate and set aside the crypto-related modifications it made to its dealer rule earlier this year, Judge O’Connor ruled. In particular, the judge found that in adjusting its dealer rule, the SEC violated longstanding norms by conflating everyday DeFi traders with professional financial brokers.
“The Rule as it currently stands de facto removes the distinction between ‘trader’ and ‘dealer’ as they have commonly been defined for nearly 100 years,” O’Connor wrote on Thursday.
The Blockchain Association celebrated the decision as a key victory in the drive to combat the current SEC’s hostile crypto policies.
“The Dealer Rule was an attempt by the SEC to advance the agency’s anti-crypto crusade,” Blockchain Association CEO Kristin Smith said in a statement shared with Decrypt. “Following today’s ruling, the agency’s overreach is rolled back and the digital asset industry is protected from this unlawful rule.”
The SEC did not immediately respond to Decrypt’s request for comment regarding today’s court decision.
Today’s decision was handed down just minutes after SEC Chair Gary Gensler—the driving force behind the agency’s crypto crackdown—announced he plans to resign in the wake of Donald Trump’s re-election. Gensler, a Democrat appointed by President Joe Biden, said he will resign on January 20, the day Trump is inaugurated.
Trump has promised to appoint an SEC chair who will ardently support the crypto industry. It remains to be seen how such an appointee would handle the agency’s current slew of pending lawsuits against many of America’s top crypto firms and projects.