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. 

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Author: Sander Lutz