SEC Crypto Rulemaking: From Enforcement-First to Project Crypto

The Securities and Exchange Commission does not make law. It interprets and enforces statutes passed by Congress. But in a domain where Congress spent a decade failing to pass comprehensive legislation, the SEC’s interpretation of existing law functioned, in practice, as regulation — and Gary Gensler’s interpretation of that law was the most consequential policy force in US crypto for four years.

The shift from Gensler to Paul Atkins in 2025 represents not merely a change in personnel but a fundamental change in regulatory philosophy. Understanding how the SEC got to Gensler’s enforcement-first approach, and what Atkins’ Project Crypto means in its place, is essential context for anyone operating in the digital asset markets.

Gensler’s Theory: Almost Everything Is a Security

Gary Gensler was confirmed as SEC Chair in April 2021. He arrived with a background unusual for a securities regulator: he had taught a course on blockchain and money at MIT’s Sloan School and had written extensively about digital assets before his confirmation. He knew the technology. His critics would later argue that this made his regulatory approach harder to excuse — he understood what he was doing.

Gensler’s core thesis was that the 1946 Howey Test — which defines a security as an investment of money in a common enterprise with an expectation of profits from the efforts of others — applied to the vast majority of digital asset tokens. Under this reading, nearly every token sold through an initial coin offering was a security offering. Nearly every crypto exchange listing unregistered tokens was operating an unregistered securities exchange. The industry was, on this theory, in comprehensive violation of US securities law.

Gensler’s preferred remedy was not rulemaking — the formal process of publishing proposed regulations, accepting public comment, and issuing final rules — but enforcement. The SEC under Gensler brought actions against Coinbase, Binance, Kraken, Ripple, Genesis, Gemini, BlockFi, and dozens of other companies and individuals. Each action was, in effect, a statement of regulatory position: this activity is a securities offering; you needed to register; you didn’t.

The approach had legal logic behind it. The SEC had clear authority to enforce existing securities law. Bringing enforcement actions was faster than rulemaking. And by pursuing enforcement rather than rulemaking, the SEC preserved the courts’ role in defining the law’s limits — if a defendant won in court, it was the court that had limited the SEC’s reach, not the SEC that had voluntarily constrained itself.

The Political Cost of Enforcement-First

The enforcement-first approach generated enormous political backlash — not from the crypto industry alone but from lawmakers in both parties who argued that the SEC was using enforcement to regulate by example in an area where clear rules were needed.

Representative Patrick McHenry, chair of the House Financial Services Committee, accused Gensler of “regulation by enforcement.” The criticism was echoed by members of the Senate Banking Committee and, eventually, by some Democrats who represented constituents — particularly younger, minority, and lower-income Americans — who held crypto assets.

The Fairshake PAC’s 2024 mobilization was, in significant part, a direct response to Gensler’s enforcement strategy. The industry calculated — correctly — that if it could change the composition of Congress and the White House, it could change the regulatory philosophy at the SEC. The $202.9 million Fairshake raised, and the 91 percent win rate it achieved in 58 targeted races, transformed the political environment.

Gensler resigned as SEC Chair on January 20, 2025, the day of Trump’s inauguration, after it became clear he would be dismissed.

Ripple: The Legal Limit of the Enforcement Approach

The SEC’s 2020 lawsuit against Ripple Labs and its executives — alleging that XRP token sales were unregistered securities offerings — produced a 2023 district court ruling that complicated the enforcement-first theory. Judge Analisa Torres found that XRP sales to retail investors through exchanges were not securities offerings under the Howey Test, even while finding that XRP sales to institutional investors were. The ruling was partial and appealed, but it established that the Howey Test did not apply as broadly to digital assets as the Gensler SEC had argued.

The Ripple ruling was not a clean win for the industry. But it demonstrated that the enforcement-first approach had legal limits — that courts would not simply defer to the SEC’s broad interpretation of Howey when applied to secondary market trading of digital assets. This limit contributed to the political pressure on Congress to legislate rather than leave the question to the agency.

Paul Atkins and Project Crypto

Paul Atkins was confirmed as SEC Chair in 2025 after a nomination by President Trump. Atkins had served as an SEC Commissioner from 2002 to 2008 and had spent the intervening years in private practice advising financial services firms. He was known as a principled advocate for market-based regulation and was publicly skeptical of the broad enforcement approach his predecessor had pursued.

Atkins moved quickly. On July 31, 2025, the SEC launched Project Crypto — an initiative to overhaul the agency’s approach to digital asset oversight. The initiative had several components.

The SEC’s Crypto Task Force, established informally under the previous acting chair in early 2025, was formalized and given a new mandate: to develop affirmative regulatory guidance rather than enforcement-based positions. The task force was directed to produce guidance on when digital assets qualify as securities, what registration requirements apply, and how existing disclosure frameworks should be adapted for the digital asset context.

The SEC dropped or settled several high-profile enforcement actions that the prior administration had pursued aggressively. The Coinbase lawsuit — in which the SEC had alleged that Coinbase was operating an unregistered securities exchange — was settled on terms favorable to Coinbase. Several other actions were dismissed.

Token Taxonomy and Regulation Crypto

In November 2025, the SEC announced a token taxonomy framework — the most significant step toward positive rulemaking the agency had taken on digital assets. The framework proposed categories for digital assets: payment tokens (not securities), utility tokens (securities only at issuance, not in secondary trading), investment tokens (securities throughout), and hybrid tokens (context-dependent).

The taxonomy was not a final rule. It was a proposed framework for comment. But it represented a fundamental shift from the enforcement-first era: the SEC was now publishing affirmative guidance on what it believed the law meant, rather than litigating the question case by case.

Regulation Crypto, announced alongside the taxonomy, proposed an alternative registration pathway for digital asset issuers — one that would allow disclosure tailored to the digital asset context rather than requiring compliance with rules designed for operating companies in traditional industries. A company issuing a utility token would not need to provide the same disclosures as a company issuing stock; it would need to provide information relevant to the token’s function, the underlying network’s status, and the issuer’s role in the network’s development.

Implications for Tokenization

The shift from Gensler to Atkins matters enormously for the tokenization industry — the emerging market for blockchain-based representations of real-world assets including real estate, bonds, equities, and private credit.

Under Gensler, tokenized assets faced the same enforcement risk as any other digital asset. The SEC’s position — that most tokens are securities — applied equally to a tokenized Treasury bond and a speculative altcoin. The uncertainty about registration requirements, custody rules, and trading venue requirements made institutional tokenization projects legally hazardous.

Under Atkins, the regulatory environment is moving toward clarity. The token taxonomy distinguishes investment tokens — the category most tokenized securities would fall into — and creates a pathway for them to be registered under rules adapted to the digital context. Regulation Crypto, if adopted in something like its proposed form, will give tokenization platforms a registration pathway that doesn’t require compliance with rules written before blockchain existed.

The speed of that regulatory development — and the question of whether it will be formalized in rules that survive a future administration change — remains the central policy question for the tokenization industry in 2026.