When Gary Gensler appeared before the Senate Banking Committee in a wood-panelled hearing room in Washington, D.C. in the spring of 2023, he stated what he had been saying in different forms for the better part of two years: the majority of cryptocurrency assets are securities, the law is clear, and platforms that trade them without registering with the SEC are in violation of the law. By that point, officials of the cryptocurrency sector had heard this speech numerous times.
The speed of the lawsuits that have already been filed and those that are still being prepared was what set this version apart. By the time Gensler left his job on January 20, 2025, the SEC had taken enforcement action against dozens of companies, including the biggest cryptocurrency exchange in the world and the most well-known US-based exchange. It is still up for debate whether that was a protracted institutional grievance or a cogent regulatory tactic.
| Category | Detail |
|---|---|
| Gary Gensler | SEC Chair, April 2021 – January 20, 2025 — former MIT blockchain professor; architect of the “enforcement-first” crypto strategy |
| Core Legal Theory | Most digital assets qualify as securities under the Howey Test (investment of money in a common enterprise with expectation of profit from others’ efforts); existing law applies without new legislation |
| Major Enforcement Actions | SEC sued Binance and its CEO Changpeng Zhao (June 2023); sued Coinbase (June 2023); charged Ripple (2020, resolved 2024); pursued Kraken, Nexo, Terraform Labs, and dozens of others |
| DeFi Targeting | Gensler argued many DeFi protocols were centralized entities disguised as technology — subject to securities law despite decentralization claims |
| Post-Departure Reversals | After Gensler’s January 2025 departure, the SEC withdrew multiple DeFi-focused regulatory proposals and dropped or paused several pending enforcement actions against crypto firms |
| Industry Critique | Critics, including the Cato Institute and several federal judges, argued the approach was regulatory overreach — applying securities law to assets that may not fit its original design |
| Legal Wins Achieved | SEC secured significant judgments — including against Terraform Labs and key FTX figures — establishing precedents that some tokens do constitute securities under specific circumstances |
| Further Reference | Full timeline of SEC crypto enforcement at Coin Center |
Gensler’s method was based on an established hypothesis. For many years, the SEC’s main analytical tool for assessing new financial instruments has been the Howey Test, a 1946 Supreme Court framework for figuring out whether something qualifies as an investment contract and, thus, a security. According to Gensler, the test is directly applicable to the great majority of digital tokens: investors commit money, they anticipate return based on the work of a development team, and the token’s worth is dependent on the team’s ongoing efforts.
According to their interpretation, nearly everything—aside from Bitcoin—qualifies as a security that needs to be registered and disclosed. The DeFi ecosystem, which portrays itself as truly decentralized, operating on automated protocols without a central team or controlling party, presented a more difficult case. Gensler devoted a significant amount of time to arguing that the majority of DeFi was a centrally controlled system that used the appearance of decentralization as regulatory cover rather than being truly decentralized in any meaningful sense.
There is something to that argument, and the replies from the cryptocurrency sector at the time did not give it enough credit. Teams with substantial governance token allocations, administrative key maintenance, and the ability to upgrade the smart contracts through procedures that provide them with effective control over user funds are responsible for the development of a large number of DeFi protocols.
It is at least partially marketing to refer to those arrangements as “decentralized.” Gensler was correct to note that. He was less forthright about how the Howey Test, which was created in the 1940s to assess stock offers, fits clumsily onto the workings of automated liquidity pools and yield-farming procedures in ways that are difficult for even sympathetic legal experts to understand.
The record of enforcement is inconsistent. Significant victories were achieved by the SEC, including rulings against Terraform Labs, successful prosecutions of FTX figures, and a partial win in the Ripple case that proved certain tokens might be considered securities in certain situations.
It also had setbacks and losses, such as court rulings that limited the agency’s purported jurisdiction and a more general political climate that grew more antagonistic to Gensler’s strategy as the 2024 election cycle approached. Enforcement-by-litigation as an alternative to formal rulemaking was met with skepticism by a number of current federal judges. That is precisely what the cryptocurrency sector said, loudly and frequently, and it resonated with enough members of the political elite to be significant.
It’s difficult to ignore the fact that a lot of what Gensler created has rapidly unraveled since his departure. The SEC has changed its stance against the industry, halted enforcement actions, and withdrawn regulation recommendations in ways that imply the institutional support for the campaign did not last.
The question that still needs to be answered is whether the fundamental legal issues he brought up—such as whether digital assets qualify as securities, whether DeFi is genuinely ungovernable, and whether users of these platforms are entitled to the disclosures required by securities law—will be addressed through the legislative process, which Gensler’s detractors have consistently maintained is the proper forum, or if they will just remain unanswered while the market continues as usual.
Now the hearing chamber is silent. The lawsuits are either being dropped or settled. The frozen wallets are being unfrozen. It remains to be seen if the subsequent age yields better answers to the issues Gensler continued to pose, or if it just ceases asking them altogether.
