As Hester Peirce, one of the SEC’s own commissioners, puts it, trying to navigate today’s crypto regulations is like playing “Floor is Lava.” Floor is Lava! Let that sink in. The creators of that innovation playground, the same people responsible for maintaining a safe space for all, are waving red flags as they cry—”it’s a minefield!” What if the lava isn't accidental? What if that's the point?
Is It Incompetence, Or Calculated Ambiguity?
Let's be blunt: incompetence could explain the SEC's sluggishness in providing clear crypto guidelines. Or perhaps Gary Gensler’s SEC was just caught in the weeds, too preoccupied with chasing headlines to establish a legitimate framework. What if the opacity isn’t a bug, but a feature?
Think about it. Ambiguity benefits someone. Who stands to gain from the money pit “Floor is Lava” world? Established financial institutions, that's who. They have the capacity to manage through a period of unknowns. They have the political lobbying might to change policy, or maybe not, and they would be the biggest losers in a truly more decentralized financial future. The longer the SEC stays on the sidelines, the longer the incumbents in traditional finance get to maintain control over this emerging and promising space.
Think about what it would mean for a world where finance was completely open and decentralized, running on blockchain. It takes on the pillars that underlie Wall Street’s concentration of power. To be honest, banks, payment processors, even the SEC itself, are all about to become obsolete. Is it really out of line to view regulatory uncertainty as an intentional strategy? It particularly appears calculated to slow or even strangle the fast-growing positive impacts of this highly disruptive technology.
As former SEC Chairman Paul Atkins recently wrote in favor of clearer rules, emphasizing the ways that blockchain technology can improve efficiency, reduce risk, and enhance transparency. In her statement, Commissioner Peirce very rightly promotes regulations that allow for the differences between these digital assets to be acknowledged. So the issue isn’t about not knowing. It's a lack of action.
Protecting Investors, Or Protecting Power?
The SEC will forever profess that its main mission is investor protection. And just as we see in every corner of finance, scams are all too frequent in the crypto space. But is anti-innovation really the best way to protect investors? Or is it just a smokescreen to justify continued gatekeeping power?
Now picture the world if the federal government completely regulated the internet in the same way that it is trying to regulate crypto. Can you picture government agents shuttering exciting new platforms because they were considered “unsafe” for the average consumer? It sounds absurd, because it is absurd. Innovation means trying new things, and trying new things always includes an element of risk.
The SEC’s heavy-handed approach comes across as less an effort to protect investors and more an attempt to protect the status quo. Instead of focusing on the worst actors, they are treating all crypto assets as dangerous. This approach ignores the many possible benefits of this new technology and chills innovation. It’s overkill to use a sledgehammer to crack a nut. You may stop another person from opening it, but ultimately you’re going to kill the nut too.
Will We See A Real Framework, Or More Lava?
To meet this demand, the need for clear custodial solutions is greater than ever. Yet as new companies flock to the crypto space, the regulatory uncertainty only increases. This absence of unambiguous guidance leaves ample room for misuse and bad faith. Without robust asset classifications and custodial frameworks, the U.S. market cannot continue to grow safely.
As our friend crypto Czar Hester Peirce has been promoting, we need a smart, flexible, market-minded framework that recognizes the different natures of different crypto assets. Certain types of assets lend themselves to qualified custodians whereas other assets lend themselves to self-custody. A one-size-fits-all approach simply won't work.
The fate of crypto regulation in the U.S. now rests on the knife’s edge. Will the SEC ensure the industry gets the clear guidelines it so clearly needs? If not, will they just keep playing “Floor is Lava,” suffocating innovation and serving the interests of incumbent finance? I fear the latter. The uncomfortable truth is perhaps that the SEC isn’t so much slow as it is strategically slow. That's not just incompetence, that's a choice. It’s a choice that could very well have a calamitous impact on the long-term future of innovation and financial autonomy. But enough is enough. It’s time for Congress to start asking serious questions and demanding real answers. The future of the entire field of finance might just hinge on it.
Remember the Enron Scandal? The dot-com bubble bursting? Those events resulted in regulatory overreach, not stopping innovation in its tracks. They refined it. To protect investors, the SEC should do more to learn from history. The positive potential of a healthy, regulated crypto market dwarfs the dangers of a stifled one. The alternative? We will continue to be at a disadvantage while other nations bear the fruits of this breakthrough technology. In the meantime, we’re left playing "Floor is Lava." That’s a game nobody wins in the long term.
