Crypto glossary
Regulation by enforcement
Regulation by enforcement is the criticism that a regulator sets rules for an industry through lawsuits and penalties instead of clear, formal rulemaking.
The phrase became central to the US crypto debate during Gary Gensler's term as SEC chair from 2021 to early 2025. Instead of writing crypto-specific rules, the SEC argued that most tokens were securities under existing law and brought cases against exchanges, token issuers, lending products and staking services. The industry responded that firms had no clear path to register and were learning the rules only when they were sued.
Court outcomes were mixed. Some rulings supported the SEC on token sales to investors, while a 2023 decision found that sales of a token on public exchanges to retail buyers were not investment contracts, and an appeals court ordered the SEC to reconsider a spot bitcoin ETF it had rejected.
In 2025 the approach changed: the SEC created a crypto task force, dropped or settled many pending cases and began work on formal guidance and rules, while Congress advanced market structure legislation. Critics of the shift argue that dropping cases weakens investor protection.
Example
A US exchange that tried for months to discuss a registration path receives a lawsuit alleging it ran an unregistered securities exchange, and its CEO publicly accuses the SEC of regulation by enforcement.