The SEC is facing a lawsuit from the Blockchain Association challenging its recent rulemaking that broadens the definition of securities dealers to encompass liquidity providers in DeFi protocols.

Filed in the Northern District of Texas by the Blockchain Association and the Crypto Freedom Alliance of Texas, the lawsuit argues that the SEC overstepped its bounds by expanding the definition of a “dealer” without following proper procedures outlined in the Administrative Procedure Act.

Under the new framework introduced in February, a dealer is now defined as a market participant that offers liquidity and serves as a market maker, irrespective of the specific securities being traded. This rule applies to dealers managing a minimum of $50 million in assets, extending its reach to automated market makers and liquidity providers in DeFi platforms.

Critics within the crypto community, including SEC commissioners Hester Pierce and Mark Uyeda, expressed dissent towards the rule, highlighting concerns about its implications on market structure and regulatory jurisdiction.

The Blockchain Association condemned the revised dealer definition as impractical and detrimental to innovation within the digital asset space. They criticized the SEC for disregarding feedback during the comment period, accusing the agency of exceeding its regulatory authority and stifling technological advancement.

In a statement, Blockchain Association CEO Kristin Smith criticized the SEC’s actions as part of an alleged agenda against digital assets, warning that the overreach could drive innovation overseas and deter American entrepreneurs.