The U.S. Securities and Exchange Commission’s (SEC) ongoing tug-of-war with the cryptocurrency industry came under sharper scrutiny last week, as its attempt to bring clarity through enforcement faced more criticism than applause. The SEC’s recent action against Impact Theory LLC further complicates an already murky regulatory terrain and reveals a deepening rift within the agency.

Last week, the SEC charged Impact Theory with “conducting an unregistered offering of crypto asset securities in the form of purported non-fungible tokens (NFTs).” This resulted from Impact Theory raising approximately $30 million from the sale of their NFTs to help fund the development of their company.

The issue for the SEC was a specific tier of NFTs, named ‘Founder’s Keys,’ which the firm marketed as a semblance of direct investment. With ambitious goals of contending with giants like Disney, Impact Theory suggested that these Founder’s Key holders would benefit from their success.

It was this aspect that the SEC determined functioned as an investment contract and therefore made the NFTs a security according to the Howey Test. As a result, Impact Theory settled for $6.1 million without admitting or denying the SEC’s findings.

Following the settlement, Tom Bilyeu, co-founder of Impact Theory, said, “Although we are disappointed that the SEC has chosen to broadly question the exciting technical innovations that make digital assets possible through the lens of the securities laws, we remain optimistic for the future of this industry.” He added that he also hoped, “that some of the questions posed by Commissioners Peirce and Uyeda in their dissent get answered in a fruitful manner to give our industry a clear path forward.”

The dissent exposes fissures in what has been seen as Chair Gary Gensler’s unwavering stand on the agency’s approach. Two prominent commissioners, Hester Peirce and Tom Uyeda, took the unusual step of challenging the official stance, releasing a statement on the same day the SEC announced the settlement.

In it, they said, “Even though we believe strongly that adults should be able to spend their money as they choose, we share our colleagues’ worry about the type of hype that entices people to spend almost $30 million for NFTs seemingly without having a clear idea about how they will use, enjoy, or profit from them. This legitimate concern, however, is not a sufficient basis to pull the matter into our jurisdiction.”

Central to their concern is what they see as the increasing overreach of the agency to further Chair Gensler’s war against crypto by misusing the Howey Test. They pointed out that no matter how Impact Theory had marketed them, the NFTs were not shares in the company, and there was no mechanism for holders to receive dividends from the company’s profits.

They stated, “The handful of company and purchaser statements cited by the order are not the kinds of promises that form an investment contract. We do not routinely bring enforcement actions against people that sell watches, paintings, or collectibles along with vague promises to build the brand and thus increase the resale value of those tangible items.”

While many have said that this throws the development of future NFT projects into doubt, it isn’t very likely to have that outcome. Of the other two tiers of NFTs that Impact Theory released, the SEC didn’t take action against them. Only the Founder’s Keys implied some form of future benefit from the efforts of Impact Theory.

If clear and cautious statements accompany future NFT launches, it will make enforcement practically impossible. Although Chair Gensler will claim this to be a victory for his campaign against crypto, it undermines his position.

Commissioner Peirce is widely regarded as the leading contender for the next Chair of the SEC after Gensler steps down. This settlement and her statement, with the support of other commissioners, may hasten Gensler’s demise rather than strengthen his position.