DeFi Founder Warns SEC’s Project Crypto Could Centralize Finance by 2027

The U.S. Securities and Exchange Commission’s (SEC) “Project Crypto” initiative is being criticized by prominent DeFi figure Ahmad Shadid, founder of io.net and O.xyz, as a potential “financial prison” that could undermine the foundational principles of decentralized finance by 2027. Launched in July 2025, the program aims to modernize outdated regulations by bringing traditional securities onto blockchain-based platforms, enabling tokenized assets to coexist with non-security crypto assets in a regulated environment [1].

According to Shadid, the initiative, while framed as progress, may instead centralize power in the hands of a few, eroding the decentralized nature that DeFi was built upon. He argues that while the SEC is technically modernizing finance, it is doing so in a way that replicates traditional financial gatekeeping mechanisms but with smart contracts enforcing compliance instead of human oversight. “We traded the dream of financial sovereignty for the nightmare of programmable compliance, and we’re calling it progress,” he said [1].

The SEC has positioned Project Crypto as a way to foster innovation, streamline compliance, and attract crypto businesses back to the U.S. Chairman Paul Atkins emphasized that the project would “unleash the full potential of on-chain software in our securities markets” and create a more efficient capital market framework [1]. It also supports the rise of “super apps,” which would allow broker-dealers to offer a wide range of financial services under a single license, reducing the burden of dealing with multiple regulatory bodies.

However, Shadid raises concerns over how these developments could lead to further centralization. He highlights three key areas of risk: mandatory licensing favoring large firms, the rise of all-in-one platforms that could lock users into centralized ecosystems, and the implementation of “programmable compliance,” where automated regulatory enforcement could eliminate human oversight [1]. He warns that such changes could marginalize small teams and open-source innovators while consolidating control among major players.

The founder of O.xyz also notes that regulatory clarity, while long overdue in the crypto space, is a double-edged sword. While it can provide much-needed stability, the way rules are implemented—especially through automated enforcement—could be more dangerous than traditional bureaucratic systems. Unlike human-led enforcement, which allows for context and appeal, programmable compliance operates in real time with no room for explanation or exception. A wallet flagged by the system might be restricted before the user even understands why [1].

Shadid acknowledges that Project Crypto could still offer benefits such as clearer tax frameworks, stablecoin guidance, and improved user protection. However, he argues that the true challenge lies in how these rules are executed. The risk, he warns, is not in the existence of the regulations themselves, but in the quiet centralization they enable [1].

To mitigate these risks, Shadid emphasizes the importance of transparency and governance. He advocates for open-source code, frequent audits, and public participation in decision-making processes. “People must see the code, understand what it does, and know when it changes,” he said. He also stresses that users must retain control over the systems they use, rejecting platforms that prioritize compliance over freedom [1].

Ultimately, Shadid believes that users hold the power to resist centralization. He encourages them to “vote with their money” by choosing platforms that respect their privacy and autonomy, and to remain vigilant by questioning the motives behind polished branding and influential names in the industry. “The more ordinary users know, the harder it will be for anyone to rewrite the rules in the dark,” he said [1].

Source: [1] SEC’s ‘Project Crypto’ Will Be a ‘Financial Prison,’ DeFi Founder Warns (https://cryptonews.com/exclusives/secs-project-crypto-will-be-a-financial-prison-defi-founder-warns/)