The regulation can take into account several factors to make the barrier for smaller projects not too high.
Except that making more rules doesn't actually remove social problems. You have to pay for judges, lawyers, courts and prisons; and the lives of rulebreakers get ruined. And the problem persists.
Engineers sign off on a building, if it falls hundreds could die. We don't do anything that grandiose usually, but sometimes software can have extreme impact on the world, and thus we should be prepared to consider the consequences of our actions thoroughly.
FYI this project (and basically every cryptocurrency project) already falls under some kind of financial regulation in most jurisdictions.
Similar to tax and accounting regulations, as you grow these regulations grow, too. For example you might need to provide risks and threats analyses for your technology.
You're liable to provide this information to the best of your ability given context (e.g., they wouldn't require a 30 page risk analysis from a indie hacker who has 20 users). If it turns out that you provided false information delibrately, or acted in bad faith, there are consequences like fines, bans, and so on.
Of course, based on your technology the government can prohbit you from bringing it to market, add constraints or require more info.
I think the idea is terrible. You want laws to be prescribed and debated, not allow some administrators to make shit up on the spot.