The U.S. Securities and Exchange Commission (SEC) is reassessing a controversial proposal that aimed to expand the definition of Alternative Trading Systems (ATS) to cover certain cryptocurrency firms. The move comes amid growing industry concerns that such a regulatory shift could overburden crypto platforms, stifle innovation, and push U.S.-based firms offshore.
What’s Changing?
The proposal, originally introduced in 2022, sought to bring decentralized finance (DeFi) platforms, crypto exchanges, and blockchain-based trading venues under the same compliance framework as traditional securities markets.
If enacted, crypto firms operating as exchanges, brokers, or clearinghouses would have faced tighter regulatory scrutiny, including mandatory SEC registration and reporting obligations.
However, the SEC is now revisiting its stance, acknowledging that the rapid evolution of the crypto sector may require a more tailored regulatory approach.
Industry Pushback and Legal Challenges
The crypto industry has strongly opposed the expansion of ATS regulations, arguing that:
Decentralized platforms cannot comply – Many DeFi protocols operate autonomously via smart contracts, making it unclear how they could register under traditional financial regulations.
Overregulation could push firms offshore – Stricter compliance rules may force crypto businesses to relocate to more crypto-friendly jurisdictions, hurting U.S. competitiveness in blockchain innovation.
SEC overreach? – Legal experts have questioned whether the SEC even has the authority to unilaterally expand the definition of trading systems without Congressional approval.
Several industry groups and pro-crypto lawmakers have pressured the agency to reconsider the rule, citing concerns about its potential chilling effect on the industry.
The SEC’s Shift in Tone
Amid mounting legal challenges and backlash, the SEC has signalled a more measured approach. Reports suggest that Chairman Gary Gensler, a vocal critic of crypto, may be softening his stance as the agency faces growing scrutiny over its regulatory tactics.
Recent court rulings—including crypto victories against the SEC in cases involving Ripple (XRP) and Grayscale—have also weakened the commission’s ability to enforce sweeping crypto restrictions.
An SEC spokesperson recently noted that the agency is now reviewing feedback from industry stakeholders and may consider modifications or exemptions for certain DeFi and blockchain-based platforms.
What’s Next?
The SEC’s final decision on the ATS expansion is expected later this year. Possible outcomes include:
Narrowed scope – The SEC could limit the rule’s application to centralized crypto exchanges like Coinbase and Binance, rather than broadly targeting DeFi protocols.
New compliance pathways – A revised proposal could introduce alternative compliance options for blockchain-based platforms, preventing regulatory overkill.
Further delays – Given the legal uncertainties and political pressure, the SEC may push back its decision and continue gathering feedback.
Final Outlook
The SEC’s reconsideration of its crypto trading regulations marks a critical moment for the U.S. blockchain industry. While increased oversight is expected, a balanced approach is needed to ensure innovation isn’t stifled.
As regulatory clarity unfolds, the battle between crypto firms and U.S. regulators will continue shaping the future of digital asset markets in America.
