Paper: Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets
Authors: Securities and Exchange Commission; Commodity Futures Trading Commission
Date: March 23, 2026
Estimated Reading Time: 95 minutes
This paper provides an interpretation of how U.S. federal securities laws apply to crypto assets and related transactions. It maintains the Howey test as the core legal standard while clarifying how it applies to different crypto asset structures and activities. The paper introduces a classification framework that separates crypto assets into five categories based on characteristics and economic function. It distinguishes between assets that are not securities by design and those that may become subject to securities laws through associated investment contracts. The interpretation emphasizes that representations and promises made by issuers are central in determining whether an investment contract exists. It also explains how crypto assets can transition out of securities treatment once issuer obligations are fulfilled or no longer relevant. Finally, the paper addresses specific activities such as staking, mining, and airdrops within this framework.
Core insights
- Asset classification framework: The paper defines five categories of crypto assets including digital commodities, collectibles, tools, stablecoins, and digital securities. Each category is evaluated based on economic characteristics rather than labeling. This classification anchors regulatory treatment in function and use rather than technology.
- Separation of asset and contract: A key distinction is made between a crypto asset and the investment contract under which it may be sold. A non-security crypto asset can still be part of a securities transaction depending on how it is offered. This separation allows the same asset to be treated differently across contexts.
- Role of issuer representations: The existence of an investment contract depends heavily on issuer statements and commitments. Explicit promises about development, profitability, or managerial efforts shape investor expectations. Without such representations, the expectation of profit is not considered reasonable.
- Lifecycle-based regulation: The paper introduces the concept that a crypto asset can transition out of securities status over time. Once issuer obligations are fulfilled or no longer relevant, the asset may cease to be tied to an investment contract. This creates a dynamic regulatory status rather than a fixed classification.
- Functional system emphasis: For digital commodities, value must derive from a functional and operational crypto system. The absence of a central controlling party and reliance on protocol-based incentives reduce the likelihood of securities classification. System design replaces managerial dependency.
The classification framework establishes a foundation for analyzing token economies through the lens of economic function rather than form. Digital commodities are positioned as assets whose value emerges from protocol usage, network participation, and supply demand dynamics. This implies that token demand is driven by utility within a system rather than speculative expectation tied to a centralized issuer. However, this raises the question of how to measure when a system is sufficiently functional to support independent demand without relying on issuer-led development.
The treatment of investment contracts highlights that token distribution mechanics are central to regulatory outcomes. If a token sale includes commitments about future development, then demand is partially derived from expected issuer performance rather than current utility. This creates a hybrid demand model where early-stage tokens rely on narrative and roadmap credibility. A critical implication is that token supply released during this phase carries embedded legal risk tied to those promises.
The concept of separation introduces a temporal dimension to tokenomics. A token initially distributed under an investment contract can later trade as a non-security once expectations of issuer-driven profit dissipate. This suggests that circulating_supply = total_supply - locked_tokens is not only an economic metric but also interacts with regulatory status if locked tokens are tied to ongoing commitments. When does market pricing fully reflect independent utility rather than residual expectations from initial issuer activity?
Reward mechanisms such as staking and mining are framed as protocol-level incentives rather than managerial distributions when they arise from automated systems. This distinction shifts the analysis toward whether rewards are algorithmically determined or discretionarily allocated. If rewards depend on protocol rules, supply emissions become predictable and not contingent on managerial decisions, reinforcing non-security classification. However, if parameters are adjustable by a core team, does that reintroduce reliance on managerial effort?
The emphasis on representations and communication channels introduces a signaling layer into tokenomics. Whitepapers, social media, and direct communications are treated as inputs that shape investor expectations. This means that token demand can be influenced not only by utility or scarcity but also by how information is structured and disseminated. A relevant consideration is whether limiting forward-looking statements or removing roadmap commitments can reduce regulatory exposure while still supporting network growth.
Finally, the framework implies that decentralization is not a binary property but a condition tied to control, governance, and economic dependence. A system transitions toward non-security status as reliance on identifiable managerial efforts diminishes. This creates an implicit incentive for projects to design governance and reward systems that minimize centralized influence. The challenge remains in determining objective thresholds for this transition and how markets interpret partial decentralization during intermediate stages.
