The Political Economy of Tokenization: Lobbying, Power, and Who Writes the Rules

Regulation is not the output of a technocratic optimisation process. It is the product of a political contest between organised interests with different preferences, institutional actors with defined mandates and bureaucratic incentives, and elected officials responding to electoral pressures. The political economy of tokenization — who participates, what they want, how they exercise influence, and how the resulting regulation reflects their relative power — is analytically prior to the content of any specific rule. Understanding the GENIUS Act requires understanding Fairshake PAC. Understanding MiCA requires understanding the post-Libra panic in European capitals. Understanding why the SEC spent a decade enforcing securities law against crypto rather than writing rules for it requires understanding Gary Gensler’s institutional theory of the agency’s mission.

The Interest Groups: A Taxonomy

Five broad categories of interests participate in the formation of tokenization policy. Their preferences differ, their resources differ, and their modes of influence differ.

Crypto-native industry comprises exchanges, token issuers, protocol foundations, custody providers, blockchain infrastructure firms, and the venture capital funds that finance them. This group’s core preference is regulatory clarity on terms that legitimise their existing business models without requiring restructuring. On the SEC/CFTC jurisdiction question, most major crypto firms prefer CFTC oversight — the CFTC has historically been a lighter-touch regulator of commodity markets than the SEC has been of securities markets. On stablecoins, issuers prefer reserve requirements they can meet (Treasury-backed, not bank deposit-backed) and redemption timelines that match their operational capabilities.

Traditional financial sector — banks, broker-dealers, asset managers, payment networks — has evolved from uniformly opposed to selectively supportive. The earlier uniform opposition reflected the calculation that an unregulated crypto sector could not compete for institutional capital. As major institutions concluded that regulated digital assets were an emerging asset class they needed to participate in, the coalition fractured. JPMorgan, Goldman Sachs, BlackRock, and Fidelity are now among the most active institutional participants in digital assets. Their regulatory preference has shifted: they now favour a regulated framework — provided it does not extend competitive advantage to crypto-native firms over incumbent institutions.

The banking sector’s residual opposition is concentrated in the community banking sector, which objects to non-bank stablecoin issuers operating without the same regulatory burden as bank deposits. The Independent Community Bankers of America lobbied against the original GENIUS Act draft on this basis and secured amendments that tightened requirements on non-bank issuers.

Consumer and investor protection advocates — state attorneys general, consumer financial protection groups, academic critics — have been weakened as a political force by two contradictory developments. The FTX collapse and associated fraud prosecutions demonstrated that the risks these advocates warned about were real. But the response of many advocates — calling for prohibition or severe restriction — became politically untenable as crypto ownership spread to an estimated 50+ million Americans. The politically sustainable position moved from “prohibit” to “regulate properly,” which is broadly aligned with what the industry also claims to want.

Central banks and monetary authorities represent a distinct interest category. The Federal Reserve’s primary concern with crypto is systemic risk and monetary sovereignty — particularly the risk that large stablecoins could displace bank deposits and reduce the effectiveness of monetary policy transmission. The Fed’s reluctance to support stablecoin legislation that did not give it meaningful supervisory authority over the largest issuers was a significant factor in the GENIUS Act’s delayed passage and final design.

The ECB under Christine Lagarde took a more publicly critical posture toward private crypto assets while simultaneously developing the digital euro — a posture that critics characterised as defending central bank monetary monopoly. MiCA’s stablecoin volume caps and reserve requirements reflect ECB influence over the Commission’s proposal.

International bodies and foreign governments exercise indirect but real influence on domestic crypto legislation through the mechanism of international standards. A US legislator may not care deeply about FATF Recommendations, but the Treasury Department cares deeply about US compliance with FATF standards — and the Treasury Department’s views on draft legislation carry weight. Similarly, the OECD’s CARF framework creates pressure on US legislators to include reporting requirements in domestic law that would allow the US to participate in the international tax information exchange.

The Fairshake Operation: Electoral Lobbying at Scale

The Fairshake PAC’s 2024 operation represents the most significant single political investment in crypto’s regulatory history. Its $202.9 million war chest — funded primarily by Coinbase ($75M+), Ripple ($50M+), and a16z-affiliated entities ($50M+) — was deployed strategically rather than broadly.

Fairshake’s methodology was to identify congressional races where targeted spending could change outcomes: competitive primaries where a crypto-hostile incumbent could be defeated by a crypto-friendly challenger, competitive general elections where Fairshake’s spending could tip the margin, and Senate races where a sympathetic challenger faced a well-funded incumbent.

The 91% win rate masks an important selection effect: Fairshake was selective about which races it entered, preferring high-probability investments over long shots. But the win rate has created a powerful signalling effect — members of Congress who are contemplating positions on crypto legislation now know that a PAC with unlimited resources and demonstrated effectiveness is paying attention.

The Fairshake model differs from traditional financial sector lobbying in several respects. Traditional financial sector PACs — commercial bank PACs, insurance industry PACs — give money primarily to incumbents with relevant committee assignments. They invest in relationships. Fairshake invested in outcomes: if the incumbent would not support crypto-friendly legislation, Fairshake would fund their challenger. This willingness to target incumbents created a more powerful deterrent than traditional PAC behaviour.

The 2026 election cycle is anticipated to feature continued Fairshake-scale spending. The PAC has indicated it will continue to prioritise Senate races, where the CLARITY Act’s fate will be determined.

The Revolving Door: From Regulator to Industry

The revolving door between financial regulators and the private sector is a structural feature of financial regulation generally. In crypto, it has been particularly pronounced.

Brian Brooks served as Acting Comptroller of the Currency in 2020–2021, issuing the interpretive letters that authorised national banks to custody crypto and use blockchain for payment activities. He subsequently became CEO of Binance.US. Brian Quintenz was a CFTC commissioner before becoming head of crypto policy at a16z — and has now been nominated to return as CFTC Chair. Dan Gallagher was an SEC commissioner before becoming Chief Legal Officer at Robinhood. Chris Giancarlo, former CFTC Chair, co-founded the Digital Dollar Project and advises crypto firms.

The revolving door has two effects. First, regulators bring genuine expertise from their private-sector stints; Brian Quintenz’s experience at a16z gives him detailed knowledge of how venture-backed crypto protocols work — knowledge that is directly relevant to the CFTC’s rulemaking on digital commodity exchanges. Second, the expectation of post-government private-sector employment creates structural incentives toward regulatory postures that the industry views favourably. These incentives are subtle — the mechanism is norm formation rather than explicit quid pro quo — but they are real.

The counter-influence also exists: the SEC under Gary Gensler was staffed by officials deeply familiar with securities law enforcement, who brought a securities-law lens to crypto that treated any unregistered offering as presumptively unlawful. The institutional culture of the SEC — forged through decades of enforcing the 1933 and 1934 Acts — was itself a political economy factor that shaped crypto regulation independently of any individual official’s career calculations.

TradFi’s Counter-Lobbying and the Coalition Dynamics

The narrative of crypto versus regulators obscures a more complex coalition dynamic. The most consequential counter-lobbying to the crypto industry’s legislative agenda has come not from consumer advocates but from traditional financial incumbents — particularly the commercial banking sector.

Banking sector lobbying against the GENIUS Act focused on the reserve requirement provisions. Banks argued that non-bank stablecoin issuers should be required to hold reserves in insured bank deposits rather than Treasury securities directly — a provision that would route stablecoin reserve capital through the banking system, generating fee income and strengthening bank balance sheets. This provision was not included in the final GENIUS Act text, but the lobbying effort secured amendments that require non-bank issuers to meet more stringent liquidity requirements than the original draft contained.

The payment networks — Visa, Mastercard, PayPal — occupy an ambiguous position. They have moved to integrate stablecoin payment capabilities (PayPal launched PYUSD; Visa and Mastercard have both announced stablecoin settlement pilots). Their lobbying has been focused on ensuring that stablecoin payment legislation does not inadvertently create a competitive advantage for blockchain-native issuers over existing payment network participants.

The asset management sector’s coalition dynamics have shifted most dramatically. BlackRock’s application for and receipt of a Bitcoin ETF, the launch of BUIDL (its tokenised money market fund with $531 million in AUM), and its active engagement in tokenised real-world assets have moved the world’s largest asset manager from regulatory observer to active participant in the policy process. BlackRock’s regulatory preferences — for a registered, transparent, investor-protection-compliant framework — align more closely with the SEC’s traditional posture than with the crypto-native industry’s CFTC-preference. This creates an interesting coalition dynamic where the largest institutional player in crypto policy aligns with the regulatory body that crypto-native firms most want to limit.

The International Dimension: How Multilateral Bodies Constrain National Choices

National legislators operate within a constraint set defined by their countries’ commitments to international bodies. The FSB’s October 2025 peer review of G20 crypto framework implementation identified material gaps and issued eight recommendations. For G20 members, the reputational cost of being publicly identified as non-compliant with FSB recommendations is meaningful — it affects FATF mutual evaluation scores, IMF Article IV consultation findings, and bilateral regulatory cooperation agreements.

The OECD’s CARF framework illustrates the mechanism most clearly. CARF requires participating jurisdictions to collect tax information from crypto service providers and exchange that information automatically with foreign tax authorities. 75 jurisdictions have committed; 48 are targeting 2026 reporting. The United States and India are notable non-signatories — a political economy choice that reflects both the complexity of adapting existing tax reporting infrastructure to crypto assets and the lobbying influence of industries (in both countries) that prefer less international tax transparency.

The FATF Recommendations on Virtual Asset Service Providers create a similar constraint. Jurisdictions that fail to implement FATF’s Travel Rule and VASP registration requirements face the risk of “grey-listing” — a formal FATF finding of strategic deficiency that has significant consequences for correspondent banking relationships and international capital flows. The threat of grey-listing has been among the most effective drivers of VASP regulation in developing economies.

The G20 roadmap for crypto regulation, developed through the FSB and endorsed at successive G20 summits, represents a further channel of international influence. The roadmap does not have binding legal force, but it creates political pressure for implementation — particularly in countries like India, whose G20 presidency in 2023 made digital asset regulation a headline issue.

Why Crypto Policy Is Structurally Different

Crypto policy differs from other financial regulatory domains in ways that have direct implications for its political economy.

The technology is ideologically charged. Bitcoin was explicitly designed as an alternative to state-controlled money. Much of the early crypto community was libertarian in orientation, hostile to regulation on principle. This ideological positioning shaped the industry’s early relationship with regulators — confrontational rather than collaborative. The shift toward professionalism and regulatory engagement that characterised 2023–2025 represents a generational and cultural change within the industry, driven by the entry of institutional participants for whom regulatory compliance is a prerequisite for participation.

The retail investor base creates political salience. An estimated 50+ million Americans own some form of crypto asset. This creates a political constituency that no other financial regulatory domain can match in raw numbers. The retail crypto holder is not analogous to the retail equity investor who primarily engages with their 401(k) through a fund manager. Crypto holders are often directly engaged with the asset, follow regulatory developments, and can be mobilised to contact elected representatives. This political salience is a structural asset for the crypto industry’s lobbying operation.

The technology crosses jurisdictional boundaries inherently. Crypto assets can be transferred across borders in minutes without using any traditional financial infrastructure. This means that overly restrictive domestic regulation does not eliminate risk — it relocates it to offshore jurisdictions while reducing domestic oversight. Regulators who understand this dynamic are more likely to build frameworks designed to attract domestic registration than to exclude activity through prohibition. This is the logic behind Singapore’s PSA, Hong Kong’s VATP regime, and the US GENIUS Act.

The incumbent financial sector’s interests are divided. Unlike in most financial regulatory domains — where incumbent interests are broadly unified behind protecting their existing market positions — the financial sector’s interests in crypto are split between defensive protection of legacy business models and offensive pursuit of new digital asset revenue streams. This division weakens the traditional financial sector’s ability to present a unified counter-lobbying front and creates space for crypto-native industry to build coalitions with sympathetic institutional participants.

The Structural Factors That Drive Regulatory Design

Several structural factors produce systematic patterns in how tokenization regulation is designed across jurisdictions.

Securities vs commodity jurisdiction design. The US SEC/CFTC contest is a product of existing institutional architecture — two agencies with different regulatory philosophies competing for jurisdiction over a new asset class. The design of any US crypto legislation necessarily reflects the institutional interests of both agencies and the congressional committees that oversee them. The CLARITY Act’s decentralisation test is not a purely technical solution; it is a political compromise that gives each agency a domain where its authority is clear.

Stablecoin treatment as monetary sovereignty issue. MiCA’s stringent stablecoin provisions, the GENIUS Act’s reserve requirements, Hong Kong’s Stablecoin Ordinance, and Singapore’s PSA stablecoin rules all reflect central bank influence on the legislative process. Central banks treat large stablecoins as potential substitutes for commercial bank money and as threats to the monetary transmission mechanism. Their influence on stablecoin legislation is structural — they provide the analytical framework (systemic risk, deposit substitution) that legislators use to justify stringent requirements.

AML compliance as international legitimacy signal. Jurisdictions seeking to attract reputable crypto firms must demonstrate FATF compliance. FATF compliance requires Travel Rule implementation, VASP registration, and risk-based AML programme requirements. The political cost of implementing these requirements — industry compliance costs, some offshore regulatory arbitrage — is offset by the political benefit of international legitimacy and access to correspondent banking networks. The mechanism is indirect but powerful: FATF grey-listing effectively makes a jurisdiction commercially unattractive for regulated crypto business.

BRICS and dollar hegemony. The geopolitical dimension of tokenization policy — the use of blockchain-based instruments to route around dollar-clearing infrastructure — has introduced a new set of political economy considerations. The Trump administration’s threatened 100% tariffs on nations pursuing dollar-bypass mechanisms signals that crypto policy has become an instrument of great power economic competition. The BRICS “Unit” pilot — a gold-anchored token for intra-BRICS settlement representing a bloc covering 47.9% of global population — is not merely a financial experiment; it is a political statement about the dollar-based international monetary order.

The Next Phase

The political economy of tokenization policy is not static. Several dynamics will shape the next phase of its evolution.

The CLARITY Act’s Senate trajectory will test whether the Fairshake operation’s electoral success translates into the more procedurally complex environment of Senate legislation. The Senate requires broader coalition-building than the House, and the Senate Banking and Agriculture Committees’ jurisdictional interests will need to be reconciled in markup.

The international coordination dynamic will intensify as more jurisdictions implement frameworks. CARF’s expansion, FSB peer review recommendations, and FATF mutual evaluations will create growing pressure on laggard jurisdictions. The question of whether the US joins CARF — bringing its enormous information-reporting infrastructure to bear — will be determined by a political economy calculation that weighs international cooperation benefits against domestic financial privacy preferences and industry lobbying costs.

The institutional capture risk will evolve as the revolving door continues to turn. A CFTC led by Brian Quintenz, an SEC led by Paul Atkins — both with deep crypto industry connections — creates genuine questions about the boundary between expert regulation informed by industry knowledge and regulatory capture that systematically favours industry interests over public interests. Monitoring the regulatory output, not just the regulatory appointments, is the appropriate analytical response.

The political economy of tokenization ultimately reflects a fundamental question about who controls the rules of digital finance. That question is not resolved by any single piece of legislation or any single election. It is a continuing contest — and understanding the contest is more valuable than knowing the current score.