SEC and CFTC Clarify Regulatory Treatment of Crypto Assets and Transactions

The SEC and CFTC (the "Agencies") jointly issued an interpretive release regarding the application of federal securities laws and federal commodities laws to certain crypto assets and transactions.

The release—developed as part of "Project Crypto" and a broader shift away from "regulation by enforcement"—provides a structured, facts-and-circumstances framework for analyzing digital assets under the Howey test. While the SEC's interpretation details when crypto assets and related transactions may constitute securities or investment contracts, the CFTC affirmed within the release that non-security crypto assets may fall within its jurisdiction as "commodities" under the CEA, depending on their characteristics. The interpretive release outlines a functional taxonomy for crypto assets, distinguishes between the legal status of a token and the circumstances of its offer or sale, clarifies when an investment contract may no longer attach to a token over time, and identifies certain core network activities—such as mining, staking, wrapping, and limited airdrops—as outside the scope of securities regulation under specified conditions. The interpretive release is also intended to help delineate SEC and CFTC jurisdiction pending potential congressional market structure legislation.

Among the key elements of the release, the SEC detailed the following:

• Classification of Crypto Assets. The SEC established a five-part taxonomy based on asset characteristics, uses, and functions, identifying categories that, depending on their design and use, are generally not treated as securities:
  • Digital Commodities: Assets intrinsically linked to, and deriving their value from, the "programmatic operation" of a "functional" crypto network where value is driven by supply, demand, and network effects rather than the "essential managerial efforts of others." The interpretive release states that examples of such digital commodities include Aptos, Bitcoin, Ether, Litecoin, Solana, and XRP.
  • Digital Collectibles: Digital collectibles are "crypto asset[s]...designed to be collected and/or used and may represent or convey rights to artwork, music, videos, trading cards, in-game items, or digital representations or references to internet memes, characters, current events, or trends, among other things." These assets include NFTs and "meme coins," whose value is derived from scarcity, cultural significance, or market sentiment. A digital collectible "does not have intrinsic economic properties or rights...or interest in or with respect to a business enterprise or other entity, promisor, or obligor associated with the creator of the digital collectible or otherwise."
  • Digital Tools: Digital tools are "crypto asset[s] that perform[] a practical function, such as a membership, ticket, credential, title instrument, or identity badge." These include assets with consumptive or functional utility, such as domain names and access tokens.
  • Stablecoins: "Payment stablecoins" issued in compliance with the GENIUS Act are statutorily excluded from the definition of a security, though other stablecoin structures may still require analysis under Howey and may fall within CFTC jurisdiction depending on their characteristics.
  • Digital Securities: These assets include tokenized traditional securities or instruments conveying rights to profits or enterprise value, which remain subject to federal securities laws.
• Investment Contracts and the "Separation" Principle. The SEC clarified that a non-security crypto asset may be offered and sold as part of an "investment contract" where purchasers rely on an issuer’s essential managerial or entrepreneurial efforts. However, the asset itself does not permanently become a security. The release introduces a "separation" concept under which a token may cease to be subject to securities laws in secondary trading once the issuer’s "essential managerial efforts" are no longer reasonably expected—such as when development is completed or abandoned—thereby eliminating the Howey "reasonable expectation of profits" prong.
• Protocol Mining and Staking. The SEC stated that Proof-of-Work mining and Proof-of-Stake staking—across a range of models, including self-mining, mining pools, solo and delegated staking, custodial staking, and liquid staking—generally do not involve the offer and sale of a security within the federal securities laws. These activities are characterized as administrative or protocol-driven functions, where rewards are earned based on network rules rather than the managerial efforts of a promoter. In addition, "staking receipt tokens" (e.g., liquid staking tokens) representing non-security assets are treated as receipts rather than separate securities.
• Wrapping Transactions. The SEC determined that "wrapping" arrangements—where a crypto asset is deposited with a custodian or bridge in exchange for a 1:1 interoperable token—do not constitute securities transactions. The wrapped asset functions as a receipt for the underlying asset and does not independently generate profit based on third-party managerial efforts.
• Airdrops. The guidance provides that distributions of non-security crypto assets via airdrops are not securities transactions where recipients provide no consideration (including money, services, or promotional activity). Because such distributions lack an "investment of money" under the Howey test, they fall outside the scope of securities registration requirements under those conditions.