TLDR
- The SEC officially withdrew Rule 3b-16 and the expanded Custody Rule introduced under Gary Gensler.
- Coinbase CLO Paul Grewal welcomed the decision and called it a positive step for blockchain innovation.
- The reversal signals a major shift in regulatory approach under new SEC Chair Paul Atkins.
- Rule 3b-16 aimed to classify DeFi platforms as securities exchanges, which sparked strong industry opposition.
- The proposed Custody Rule would have forced many crypto firms to restructure or exit the US market.
The US Securities and Exchange Commission reversed multiple high-profile crypto-related proposals introduced under former Chair Gary Gensler. These include the rescinded Rule 3b-16 and the proposed expansion of the Custody Rule. The move signals a notable policy shift under new leadership, which aligns with President Trump’s pro-crypto stance.
Crypto advocates, including Coinbase CLO Paul Grewal, welcomed the rollbacks as a significant win for blockchain innovation. The industry had voiced strong opposition to the rules, calling them restrictive and misaligned with decentralized technology. The SEC’s actions reflect a strategic shift from aggressive enforcement to structured rulemaking.
Down goes 3b16, qualified custodian, and all the other unfinished Gensler rule proposals. @secgov just issued final notices rescinding them all.
— paulgrewal.eth (@iampaulgrewal) June 12, 2025
Chair Paul Atkins directed the agency to repeal several compliance-heavy measures that faced widespread criticism during Gensler’s term. These changes reduce regulatory burdens and mark a new direction in the SEC’s approach toward crypto markets. The decision also aligns with the broader deregulatory agenda outlined by the current administration.
Crypto rules reversal brings clarity to DeFi
Under the now-defunct Rule 3b-16, the SEC aimed to redefine what constituted a securities exchange. This would have brought DeFi platforms under the same oversight as traditional exchanges. The industry argued the rule misclassified decentralized systems and would obstruct innovation.
The repeal removes the immediate risk of classifying protocol-based systems as securities platforms. Many DeFi developers have expressed concern over the potential implications of compliance. The decision now offers relief and regulatory clarity for decentralized projects operating in the US.
Paul Grewal and other crypto leaders emphasized the need for legal frameworks that reflect the distinct structure of digital networks. The rule’s reversal strengthens the case for innovation-based regulation rather than litigation-driven enforcement. It also reflects the consensus that such policies created legal ambiguity for builders.
SEC shifts stance on crypto asset custody
The SEC also retracted its proposed expansion of the Custody Rule, which targeted crypto asset management practices. This proposal would have required investment advisers to use qualified custodians for all client assets, including crypto. Industry participants warned that most crypto firms did not meet those definitions.
The move would have triggered large-scale operational restructuring or market exits across the sector. With the rollback, the SEC acknowledged the practical challenges firms faced under the proposal. This has been seen as a step toward better alignment with the unique features of digital asset custody.
Paul Atkins confirmed the SEC’s updated direction, emphasizing engagement over enforcement. The agency’s Crypto Task Force, led by Hester Peirce, will now focus on clear rulemaking. Regulatory clarity, as promoted by the advancing CLARITY Act, is expected to guide future oversight.
