The SEC Finally Defines Crypto

Today, the United States Securities and Exchange Commission (SEC) issued an interpretation that clarifies the application of federal securities laws to crypto assets.

What's the Scoop?

• Crypto Clarity: As part of its efforts to provide greater clarity regarding the treatment of crypto assets under the federal securities laws, the SEC has published interpretation of the definition of “security” as applied to certain types of crypto assets and transactions involving crypto assets. The Commodity Futures Trading Commission (CFTC) assisted in the interpretation, certifying that certain “non-security crypto assets” meet the definition of “commodity” under the Commodity Exchange Act.
• Classification System: The SEC’s interpretation classifies crypto assets into five categories. It deems digital commodities, digital collectibles, digital tools, and stablecoins as non-securities. Meanwhile, blockchain-based financial instruments that meet the definition of a “security" will be it classified accordingly.
  • Commodity Clarity: According to the SEC's guidance, Aptos (APT); Avalanche (AVAX); Bitcoin (BTC); Bitcoin Cash (BCH); Cardano (ADA); Chainlink (LINK); Dogecoin (DOGE); Ether (ETH); Hedera (HBAR); Litecoin (LTC); Polkadot (DOT); Shiba Inu (SHIB); Solana (SOL); Stellar (XLM); Tezos (XTZ); and XRP (XRP) are classified as non-security digital commodities.
  • Collectible Clarity: According to the SEC's guidance, CryptoPunks, Chromie Squiggles, Fan Tokens, WIF, and VCOIN are classified as non-security digital collectibles.
  • Tool Clarity: According to the SEC's guidance, Ethereum Name Service domain names and CoinDesk’s ‘Microcosms’ NFT Consensus Ticket are classified as non-security digital tools.
  • Stablecoin Clarity: According to the SEC's guidance, any GENIUS Act-compliant payment stablecoin is a non-security stablecoin.
  • Security Clarity: According to the SEC's guidance, digital assets that fail the Howey test will be classifies as securities. Non-security crypto assets can become securities if offered via an investment contract, where purchasers expect managerial efforts to derive profit. Additionally, just because a non-security crypto asset was offered via an investment contact does not mean it is a security in perpetuity; crypto assets can become non-securities once an original investment contract is fulfilled or the issuer fails to fulfill the efforts they promised to undertake.
• Use Case Clarity: The SEC's guidance explains that protocol mining, protocol staking, and the “wrapping” of a non-security crypto asset does not involve the offer and sale of a security. It further clarities that "certain" airdrops do not involve an “investment of money” under the Howey test.