We didn’t ask for permission; we asked for code. That’s the mantra that built crypto. But last week, U.S. Treasury Secretary Scott Bessent handed regulators a playbook to write their own version of permission—and it’s not just about AI.
Bessent proposed creating an independent agency, modeled after the Financial Industry Regulatory Authority (FINRA), to oversee “frontier” AI models. On the surface, it sounds like a sensible attempt to manage existential risks. But as someone who has spent years auditing smart contracts for protocols like Augur and Gnosis, I’ve learned to read between the lines of regulatory proposals. This one isn’t about safety. It’s about power—and it carries a warning for every crypto builder.
Context: The FINRA Blueprint FINRA is a self‑regulatory organization (SRO) that oversees U.S. securities brokers. It operates under the SEC’s thumb, with the authority to write rules, conduct exams, and impose fines. The SEC doesn’t have to do the dirty work; FINRA does it for them. Bessent wants to clone this structure for AI. A new agency would set compliance standards for advanced models, conduct audits, and penalize non‑compliance—all under the SEC’s umbrella.
Why does crypto care? Because the SEC has already claimed that many tokens are securities. If it can successfully treat AI models as “systemic risks” needing a FINRA‑style cop, the same logic can be applied to decentralized networks, DeFi protocols, and even DAOs. The precedent is the real target.
Core: Technical Flaws in a Political Machine The proposal’s fatal flaw is its assumption that “frontier” can be quantified. Bessent suggests thresholds based on computational power (FLOPs) or parameter counts. But any engineer knows that model capability doesn’t scale linearly with size. A 10‑billion‑parameter model with advanced alignment techniques can be safer than a 500‑billion‑parameter one trained on biased data. The same ambiguity haunts crypto’s “Howey Test”—what is a security? The SEC loves these gray areas because they give it discretion to pick winners and losers.
In my audit experience, I’ve watched regulators struggle with technical nuance. When Augur launched its prediction market, the SEC couldn’t decide if the tokens represented securities or utility. They defaulted to “we’ll figure it out later”—which meant years of chilling innovation. The same will happen with AI. Compliance will become a box‑ticking exercise, not a genuine safety guarantee. Red‑flag spending on “alignment consultants” will skyrocket, while actual technical risks go unaddressed.
And here’s the crypto connection: on‑chain AI projects like Bittensor (where models are traded as subnets) or Render (distributed compute for AI) will be caught in this crossfire. A DePIN node operator might suddenly need to prove their compute isn’t being used to train a “frontier” model. The compliance costs will flow down the stack.
Contrarian: The Hidden Agenda The mainstream narrative is that regulation brings clarity and protects users. But the contrarian angle—backed by my analysis of Bessent’s proposal—is that this is a slow‑moving power grab by the SEC. By framing AI as a “systemic financial risk,” the SEC justifies expanding its budget and authority into any technology that touches money or computation. Crypto is already in its crosshairs. Now AI is too.
Open source isn’t just a license; it’s a philosophy of transparency. But a FINRA‑style agency would crush open‑source AI by making model publishers liable for misuse. The same logic could be applied to open‑source crypto wallets, block explorers, or DeFi front‑ends. We’ve already seen the Treasury Department target Tornado Cash’s smart contract code as “property.” Next, they’ll target the developer who wrote the code. Bessent’s proposal provides the legal framework to do exactly that.
There’s another hidden layer: the “compliance as a service” industry. Bessent’s plan will mint a new class of gatekeepers—audit firms, AI safety consultants, and regulatory technology vendors—that will extract rent from every AI developer. The cypherpunk dream of permissionless innovation will become a nightmare of permissioned access.
Takeaway: A Call to Arms for the Crypto Builder The crypto industry must learn from AI’s regulatory pivot. We can’t afford to wait until the SEC announces a FINRA for decentralized exchanges. The battle is not just about tokens; it’s about the fundamental right to build without asking permission.
Decentralization is not a tech stack; it’s a political stance. Bessent’s proposal is a reminder that the most dangerous code is the one written by regulators—because it runs on compliance, not consensus.
We didn’t ask for permission; we asked for code. Let’s keep it that way. The next time you see a headline about AI regulation, ask yourself: who gets to define “frontier”? Who pays for the audit? And who decides when innovation becomes a crime?
The answers will shape the future of crypto just as much as the future of AI. And if we don’t fight the FINRA blueprint now, we’ll be fighting it from inside a compliance cage.
