In short, the SEC is seeing the trees and missing the forest. Badly. We're all caught in this endless loop, debating decentralization like it's the holy grail of crypto regulation. But let's be honest, isn't this whole "decentralization determines security status" argument a convenient smokescreen? Without question, this feels like a concerted effort to obfuscate the actual problem at hand. This leads to an illogical regulatory gauntlet, which benefits them, but no one else.
Decentralization: A Convenient Distraction?
The SEC continues to hold on to the Howey Test, painting it as an important shield for investors. Yet this dangerous dependence erases the test’s initial intent: to rate securities connected with actual commercial enterprises. Gary Gensler continues to inappropriately apply this test to crypto. It seems much more like a fake effort to protect investors and much more like a dangerous power grab. Nothing is more infuriating than watching someone try to pound a square peg into a round hole. Then they turn around and blame the peg when it doesn’t fit!
Think about it. The SEC's argument hinges on the idea that if no single entity controls a crypto network, it's decentralized and therefore not a security. Control isn't an all-or-nothing game. Think back to those classic cartoons where the bad guy was able to manipulate his nemesis using just one, well-placed follicle. Control, even at surprisingly small levels of influence, can be extraordinarily powerful. The SEC knows this. They know that affiliate status under traditional securities law. So then why are they behaving as though decentralization is this magical, binary on/off switch.
Is SEC Protecting Investors or Incumbents?
Here's where the "unexpected connection" comes in. The SEC has become almost dogmatically obsessed with decentralization. This obsession plays right into the arguments that have for too long justified the captured influence of established financial institutions. Too big to fail, they said. Complex systems need centralized control, they argued. Is the SEC, maybe unwittingly, doing the same in the crypto space? Indeed, are they protecting investors—or protecting the traditional financial order from being disrupted?
The reality is, the SEC’s current approach is adding confusion and ambiguity, not removing it. Only the big banks and other established players win in this uncertainty. What’s more, they have the resources to greatly limit public participation through course-changing legal maneuvers. Our small innovators are hurting. Meanwhile, the developers who are still actively working to create truly decentralized applications are under the constant threat of regulatory action simply for trying to build something innovative. This isn't just unfair, it's stifling innovation.
The Asset, Not The Network, Matters!
What if we stopped obsessing over decentralization and started focusing on what really matters: the asset itself? What if we applied a simple, straightforward test: does this crypto asset represent a legal or contractual claim on the assets, revenues, or profits of a business?
| Feature | Traditional Securities | Most Cryptoassets |
|---|---|---|
| Claim on Business | Yes | No |
| SEC Disclosure Rules | Relevant | Largely Irrelevant |
| Trading Rules | Business-Based | N/A |
If it isn’t, then treat it like a security and regulate it as such. If it doesn’t, then it needs to not be held to the same draconian standards. This new approach is more reasonable than the previous one and much more predictable. And predictability is key to encouraging innovation and supporting new investment.
Under the SEC’s current disclosure rules, this is indeed a largely irrelevant standard for most crypto assets. Why? Because there isn't a business to examine! You can attack Bitcoin all you like, but there’s no balance sheet and there’s no income statement. But because it’s a decentralized, open-source protocol, it’s not a corporation. Treating cryptocurrencies with the same disclosure rules corporations use today is a wrench-to-hammer-nailed approach. It simply doesn't work.
Some will cry foul. "What about manipulation?" they'll say. "We need the SEC to protect investors from scams!" Of course, manipulation is a problem. The SEC isn’t the only, or even the best, agency to deter manipulative conduct. Further, many agencies, including the CFTC, already have the authority to protect consumers and go after bad actors in the crypto space. The SEC’s obsession with decentralization is a dangerous red herring, deflecting from the issue of fraud and market manipulation.
We need a rational, asset-based regulatory framework for crypto as a whole. One that encourages innovation, protects investors, and doesn’t hamstring the possibilities of this transformative technology. Stop the decentralization delusion. It’s time for the SEC to look at the asset, not the network. The future of finance depends on it.
