The US Securities and Exchange Commission (SEC) may scrap a proposed rule that sought to classify certain crypto firms as exchanges, according to Acting Chairman Mark T. Uyeda. 

Speaking at the Institute of International Bankers’ Annual Washington Conference on March 10, Uyeda suggested that the SEC is reconsidering the broad 2022 proposal that aimed to expand the definition of an “exchange.” 

The rule would have required many crypto trading platforms, including decentralized finance (DeFi) protocols and communication-based trading systems, to register with the SEC.

“In light of substantial public feedback against redefining exchanges to include crypto, I have directed SEC staff to explore options for abandoning this aspect of the proposal,” Uyeda stated. His remarks indicate a possible shift away from the SEC’s previous approach under former Chair Gary Gensler, who advocated for stricter oversight of digital asset markets.

The 2022 proposal faced significant pushback from industry stakeholders, who argued that the language was overly broad and could unintentionally impact software developers and blockchain-based applications that merely facilitate transactions rather than execute them directly. Critics also warned that such regulations could stifle innovation and drive crypto businesses overseas.

Uyeda’s comments suggest that the SEC may be moving toward a more measured regulatory approach. While the commission continues to assess oversight needs for crypto markets, Uyeda emphasized that his immediate focus is on strengthening traditional financial markets, particularly the US Treasury market. 

Uyeda has directed SEC staff to collaborate with the US Treasury Department, the Federal Reserve, and market participants to review regulatory frameworks for trading government securities.

If the crypto exchange rule proposal is abandoned, it would be a notable policy shift that could provide regulatory relief for DeFi projects and crypto trading venues. However, broader discussions on crypto regulation, including stablecoin oversight and consumer protection measures, remain ongoing at both the SEC and legislative levels.

Market participants will be closely monitoring the SEC’s next steps, as Uyeda’s directive could signal a more nuanced approach to crypto regulation while prioritizing financial stability in traditional markets.