SEC's Crypto Framework: The New Token Taxonomy

Key Takeaways

• The SEC issued a formal interpretation of the definition of "security" as applied to certain types of crypto assets and activities involving crypto assets. The CFTC joined the interpretation to provide complementary guidance under the Commodity Exchange Act.¹ This interpretation supersedes the 2019 "Framework for 'Investment Contract' Analysis of Digital Assets" previously issued by the staff of the SEC's Strategic Hub for Innovation and Financial Technology (staff of the SEC, the "Staff").
• The Interpretive Release classifies crypto assets into five categories: (i) Digital Commodities (not securities); (ii) Digital Collectibles (not securities); (iii) Digital Tools (not securities); (iv) Stablecoins (GENIUS Act payment stablecoins and certain "covered stablecoins" not securities); and (v) Digital Securities / tokenized securities (securities), while noting that even a non-security crypto asset may be offered as part of an investment contract and thus be subject to the federal securities laws.² Conversely, the Interpretive Release also provides guidance on when the investment contract analysis would be considered to be separated from the non-security crypto asset.
• The Interpretive Release provides guidance on the circumstances under which protocol mining, protocol staking and the wrapping of a non-security crypto asset do not involve the offer and sale of a security and certain airdrops do not involve an "investment of money" under the Howey test.
• The SEC is likely to follow up on the Interpretive Release by issuing a "safe harbor" for issuers of crypto assets that are offered as part of an investment contract.

Summary

The SEC issued a formal interpretation (the "Interpretive Release" or the "Release") of the definition of "security" as applied to certain types of crypto assets and activities involving crypto assets, with the aim of providing greater clarity regarding the application of the federal securities laws to such assets and activities. The CFTC joined the Interpretive Release, signaling growing cooperation between the two agencies on crypto matters. The CFTC stated that the CFTC and its staff will administer the Commodity Exchange Act in a manner consistent with the Interpretive Release and indicated that certain non-security crypto assets could meet the definition of "commodity" under the Commodity Exchange Act.³

In 2019, nearly seven years prior to its release of the Interpretation, the Staff of the SEC's Strategic Hub for Innovation and Financial Technology ("FinHub," as it then was called) issued a "Framework for 'Investment Contract' Analysis of Digital Assets"⁴ (the "Framework"), which sought to provide factors for analyzing whether a crypto asset was a security. Although many crypto firms sought to use the Framework, it was criticized as being overly complex, ambiguous and difficult to apply in practice. Many market participants therefore likely will welcome the SEC's statement that the Framework now stands superseded by the Interpretive Release. The Interpretive Release is also likely a response to criticisms that the SEC, under the prior Administration, had been overly reliant on litigation and adversarial actions to regulate crypto – an approach often characterized as "regulating by enforcement."⁵

Notably, while the Interpretive Release supersedes the Framework, it does not supersede the Howey test for assessing whether a transaction or scheme is an investment contract (and therefore a security).⁶ The Howey test was first set forth in a Supreme Court decision and remains binding legal precedent. The Howey test as formulated by the SEC in the Release defines an investment contract as a contract, transaction or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits derived from the efforts of others. The Release sets forth the SEC's views on how certain aspects of the Howey test apply to crypto assets and transactions involving crypto assets.

Several sections of the Interpretive Release echo views that have already been publicly expressed by the Staff, and the general direction of the Interpretive Release is likely to be consistent with the current perspectives and practices of many participants in the crypto industry. With that said, certain areas of ambiguity remain, and the SEC is soliciting public comment on the views expressed in the Interpretive Release to inform its ongoing consideration of the topics addressed therein.

In this OnPoint, we summarize:

1. the taxonomy discussed in the Interpretive Release for crypto assets;
2. the SEC's view on Howey's application to crypto assets; and
3. the Interpretive Release's analysis of common activities involving crypto assets such as mining, staking, wrapping and airdrops.

Discussion

I. Token Taxonomy: Five Categories of Crypto Assets

According to the SEC, crypto assets can represent virtually any type of security, good, service, right or interest in digital format, and they vary widely in their characteristics, uses and functions. The Interpretive Release classifies crypto assets into five categories:⁷

1. Digital Commodities (Not Securities). Digital commodities are crypto assets whose value is derived from the programmatic operation of a "functional"⁸ crypto system and from supply and demand dynamics and which do not have intrinsic economic properties or rights, such as yield or rights to future income or profits of a business enterprise.⁹ The SEC provides a non-exhaustive list of examples in the Interpretive Release, many of which are among the largest crypto assets by market capitalization – 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).¹⁰ The Interpretive Release states that because a digital commodity does not have the economic characteristics of a security, it is not itself a security. More specifically, the SEC states that the value of a digital commodity is intrinsically linked to the programmatic functioning of a "functional crypto system," (i.e., it has intrinsic value derived from the value of the goods and services that may be produced or accessed using that digital asset (which the digital asset facilitates and incentivizes), as well as from "supply and demand dynamics"). Thus, a purchaser would not reasonably expect to profit based on the essential managerial efforts of others.¹¹
2. Digital Collectibles (Not Securities). Digital collectibles are crypto assets 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 (i.e., "meme coins"), characters, current events or trends, among other things.¹² Like its physical counterpart, a digital collectible derives its value from supply and demand, subject matter, popularity or scarcity – not from the expectation of profits based on the essential managerial efforts of its creator. While the value of a digital collectible may be impacted directly or indirectly by the activities or reputation of the creator, the creator of a digital collectible typically does not make representations or promises to undertake essential managerial efforts from which a purchaser would reasonably expect to derive profits. The Interpretive Release concludes that digital collectibles do not have the economic characteristics of a security and are therefore not securities.¹³
3. Digital Tools (Not Securities). Digital tools are crypto assets that serve a practical function, such as memberships, tickets, credentials, title instruments or identity badges.¹⁴ Holders acquire digital tools for their functional utility and do not obtain any rights or interests in, or with respect to, any business enterprise or other entity. Like digital commodities and digital collectibles, digital tools do not have the economic characteristics of a security and are therefore not considered to be securities by the Interpretive Release.

as digital commodities because their value is intrinsically derived from the programmatic operation of a functional crypto system and from supply and demand dynamics, rather than from the expectation of profits attributable to the essential managerial efforts of others. See 91 Fed. Reg. at 13718 n.51.

To view the full pdf, click here

Footnotes

1. See Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, 91 Fed. Reg. 13714 (Mar. 23, 2026).

2. See Fact Sheet: Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets ("Fact Sheet").

3. See 91 Fed. Reg. at 1316.

4. Framework for "Investment Contract" Analysis of Digital Assets (April 3, 2019) available at https://www.sec.gov/about/divisions-offices/division-corporation-finance/framework-investment-contractanalysis-digital-assets#_edn1.

5. See, e.g., Commissioner Hester M. Peirce, Outdated: Remarks before the Digital Assets at Duke Conference (Jan. 20, 2023), available at https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-dukeconference-012023#_ftn35; Commissioner Mark T. Uyeda, Remarks at the "SEC Speaks" Conference 2022, available at https://www.sec.gov/newsroom/speeches-statements/uyeda-speech-sec-speaks-090922; Commissioner Mark T. Uyeda, Remarks at the "SEC Speaks" Conference 2025, available at https://www.sec.gov/newsroom/speeches-statements/uyeda-remarks-sec-speaks-051925.

6. In SEC v. W.J. Howey Co., 328 U.S. 293 (1946) ("Howey").

7. Note that these five categories are effectively identical to categories identified by SEC Chair Atkins in a speech in November 2025. See Paul S. Atkins, The SEC's Approach to Digital Assets: Inside "Project Crypto" (Nov. 12, 2025), available at https://www.sec.gov/newsroom/speeches-statements/atkins-111225-secs-approachdigital-assets-inside-project-crypto.

8. A crypto system is "functional" where its native crypto asset is capable of being used on the system in accordance with the system's programmatic utility. A "native" crypto asset is one generated for use on a particular crypto system. See 91 Fed. Reg. at 13718 n.49.

9. There is some ambiguity regarding whether a digital commodity must be part of a "decentralized" crypto system. In one footnote, the Interpretive Release notes that a digital commodity may be native to a decentralized crypto system. However, in the text the SEC states that "[a] functional crypto system does not have a central party that oversees participation or distributes rewards to users." On balance, it seems more likely that the SEC sees a digital commodity as a crypto asset that is part of a decentralized crypto system. According to the Interpretive Release, a crypto system is "decentralized" if it functions autonomously and no person or entity exercises operational, economic or voting control over it. See 91 Fed. Reg. at 13718 n.50.

10. In footnote 51 of the Interpretive Release, the SEC explained that each digital commodity referenced in the Interpretive Release underlies a futures contract available for trading on a designated contract market subject to CFTC oversight. However, underlying such a futures contract is not a prerequisite for digital commodity status; it merely explains the selection of these examples. For instance, as of the date of the Interpretive Release, Algorand (ALGO) and LBRY Credits (LBC) – neither of which underlies such a futures contract – qualify

11. See 91 Fed. Reg. at 1378.

12. See 91 Fed. Reg. at 13718.

13. See 91 Fed. Reg. at 13718-13719. Note, however, that the offer and sale of a digital collectible that either is fractionalized or otherwise enables individuals to acquire a fractional ownership interest of a single digital collectible could constitute the offer or sale of a security because it may involve essential managerial efforts from which a purchaser would reasonably expect to derive profits and, therefore, may be offered and sold as an investment contract.

14. See 91 Fed. Reg. at 13719-13720.