SEC Chair Outlines Token Taxonomy for Crypto Assets

SEC Chair Paul S. Atkins proposed a new regulatory framework for digital assets aimed at bringing clarity, fairness, and common sense to the application of federal securities laws.

Speaking at the Federal Reserve Bank of Philadelphia, Mr. Atkins proposed four principal digital asset classifications: (i) "digital commodities," such as network tokens; (ii) "digital collectibles," such as NFTs; (iii) "digital tools," which provide access or functionality; and (iv) "tokenized securities," which represent traditional financial instruments on a blockchain. He stated that the first three categories are generally not securities, while tokenized securities would remain subject to federal securities laws.

Mr. Atkins clarified how the Howey test would apply to digital assets. He argued that a token is not automatically a security forever just because it may have been sold as part of an investment contract at launch. He said that once the issuer’s promises are fulfilled or a network becomes sufficiently decentralized, the investment contract can end. Mr. Atkins emphasized that a token that continues to trade after that point does not remain a security simply because of its origins. 

To implement this new approach, Mr. Atkins said he directed SEC staff to develop recommendations for a tailored offering regime designed to facilitate responsible capital formation while protecting investors. He said he also supports allowing tokens that have "graduated" from an investment contract to trade on platforms outside SEC jurisdiction, including those overseen by the CFTC. He emphasized that the initiative is not a retreat from enforcement against fraud but a commitment to establishing clear, workable rules for honest innovators.