US regulators have released a landmark interpretation on crypto asset regulation that defines how existing Federal securities and commodities laws apply across digital assets and related activities.
Summary
Regulatory background and purpose of the interpretation
The Securities and Exchange Commission and the Commodity Futures Trading Commission have engaged with crypto assets for more than a decade, starting with the 2017 report on The DAO. In that report, the SEC determined that tokens issued by The DAO were offered and sold as investment contracts and therefore as securities under the Howey test.
Since 2017, the SEC has largely applied the Howey test through enforcement actions to decide whether particular crypto assets are securities. However, Commissioners and market participants criticized this posture as “regulation by enforcement,” arguing that it failed to provide a tailored framework for innovation and clear expectations for issuers and intermediaries.
Applying Howey to crypto has proven complex because projects show very different levels of control, governance, and functionality. Moreover, the range of crypto assets, from payment tokens to NFTs and protocol tokens, and the rapid evolution of these systems, has produced divergent views among regulators, courts, and industry participants, especially around secondary market trading.
On January 21, 2025, the SEC’s Acting Chairman created a Crypto Task Force to clarify when digital assets and related transactions fall under Federal securities laws. The Task Force has since held roundtables and collected over 300 written submissions from issuers, investors, law firms, auditors, academics, associations, investment companies, intermediaries, service providers, foundations, and foreign entities.
In July 2025, the President’s Working Group on Digital Asset Markets issued “Strengthening American Leadership in Digital Financial Technology,” calling for a clear taxonomy for crypto assets and urging the SEC and CFTC to use existing powers to keep blockchain innovation within the United States. That same month, the SEC Chairman launched Project Crypto, an agency-wide modernization effort to adapt securities rules to onchain markets.
On January 29, 2026, it was announced that Project Crypto will move forward as a joint SEC–CFTC initiative to harmonize oversight of crypto asset markets. Importantly, the new interpretation represents the first formal step toward a more coherent regulatory framework, while keeping the Howey test itself intact as binding precedent.
The SEC states that it and its staff will apply the Federal securities laws consistent with this interpretation, including in enforcement, while the CFTC confirms it will administer the Commodity Exchange Act in a manner aligned with the SEC’s views. Moreover, the CFTC reiterates that certain non-security crypto assets can qualify as “commodities” under that statute.
Definition of security and the role of the Howey test
Congress drafted a deliberately broad statutory definition of security, designed to capture virtually any instrument sold as an investment. The definition lists familiar instruments such as stocks and bonds but also includes open-ended categories like “investment contract,” “certificate of interest or participation in a profit-sharing agreement,” and “any interest or instrument commonly known as a security.”
The Supreme Court has repeatedly emphasized that these laws turn on economic reality, not labels. Form must be subordinated to substance. However, the term “security” is not limitless; Congress did not intend a federal remedy for every fraud, and items purchased for use or consumption, whether physical or digital, generally fall outside the securities regime.
There is no single universal test to determine whether an instrument is a security. Instead, courts examine whether it fits any instrument enumerated in the statutory list. For novel or irregular arrangements, courts most often use the investment contract analysis from the 1946 SEC v. W.J. Howey Co. decision.
Under Howey, an investment contract exists when a person invests money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others. Moreover, the Court intended this standard to be flexible so that promoters cannot evade regulation simply by changing the form of the instrument.
Five core categories of crypto assets
For purposes of this release, the SEC classifies crypto assets into five categories based on characteristics, uses, and functions: digital commodities, digital collectibles, digital tools, stablecoins, and digital securities (tokenized securities). However, the Commission notes that some assets may not fit neatly into a single category or may have hybrid characteristics.
The SEC concludes that digital commodities, digital collectibles, and digital tools, as described in the release, are not themselves securities. That said, they can still be offered and sold pursuant to an investment contract, which is itself a security. Stablecoins may or may not be securities depending on their features, while digital securities are clearly securities.
Digital commodities
A digital commodity is a crypto asset whose value is intrinsically linked to the programmatic operation of a functioning crypto system and to supply and demand dynamics, rather than to expectations of profit from others’ essential managerial efforts. It does not inherently provide passive yield or rights to future income, profits, or assets of a business.
Examples of digital commodities include Bitcoin, Ether, and other native tokens that enable participation in a live network. These assets often grant technical rights, such as the ability to participate in consensus (including through staking), pay transaction or gas fees, and sometimes vote on governance proposals. Newly generated tokens and fees function as incentives for validators.
According to the SEC, a digital commodity is not a security because its value flows from protocol functionality, network security, and utility, combined with market supply and demand. Moreover, purchasers are not relying on the essential managerial efforts of a promoter or central enterprise to generate profits.
Digital collectibles
A digital collectible is a crypto asset designed to be collected or used, often representing artwork, music, videos, trading cards, in-game items, or culturally significant digital objects. These assets do not inherently generate yield or confer rights to future income. Well-known examples include CryptoPunks and other unique NFTs.
Like physical collectibles, digital collectibles typically do not grant legal rights or equity in a business associated with the creator. They may convey limited licenses or intellectual property rights, often governed by end-user agreements. Furthermore, social platforms and games frequently deploy digital collectibles to improve engagement and reward early or active users.
The SEC concludes that a digital collectible itself is not a security because its value is primarily artistic, entertainment, social, or cultural. Purchasers are not investing in a business enterprise with a reasonable expectation of profits from the creator’s essential managerial efforts. However, the Commission warns that fractionalized interests in a collectible could be securities if they involve such efforts and corresponding profit expectations.
Digital tools
A digital tool is a crypto asset that delivers a practical function, such as membership, ticketing, credentials, title records, or identity badges. These tokens are commonly issued for use within crypto systems and are focused on utility, not investment. Many digital tools are non-transferable or “soul-bound,” and their value is tied to functionality rather than speculation.
Examples include ENS domain names and certain NFT-based tickets. Holders typically do not acquire rights in a business or expect profits from the developer’s managerial efforts. Developers may enhance features, but such actions usually do not amount to explicit promises that would create reasonable profit expectations.
For these reasons, the SEC views a digital tool as outside the definition of a security. The core driver of value is practical use, not an investment relationship. That said, as with other categories, a digital tool could be offered as part of a broader investment contract, depending on representations and structure.
Stablecoins
A stablecoin is a crypto asset designed to maintain stable value relative to a reference asset such as the U.S. dollar. In July 2025, Congress enacted the GENIUS Act, which created a comprehensive regulatory framework for a specific type of stablecoin called a “payment stablecoin.”
The GENIUS Act explicitly excludes from the statutory definition of security any payment stablecoin issued by a “permitted payment stablecoin issuer,” as defined in that law. Consequently, payment stablecoins from permitted issuers will categorically not be securities once the Act is effective. However, other stablecoins may still meet the securities definition depending on their structure and disclosures.
Prior to the GENIUS Act, SEC staff issued a statement assessing certain stablecoins under securities laws. In light of the new statute, and to clarify its position, the Commission now interprets that the offer and sale of particular stablecoins described in that staff statement do not involve securities. Moreover, this new interpretation does not address stablecoins outside that prior guidance.
Digital securities
Digital securities, or tokenized securities, are instruments already enumerated in the statutory definition of “security” but formatted as or represented by crypto assets, with ownership records maintained on one or more networks. These can include tokenized equity, debt, or other traditional instruments.
Tokenized securities vary in structure and the rights they provide. Where such tokens grant legal claims on a business enterprise, or entitle holders to economic distributions from a central party, they are securities. Moreover, the SEC stresses that a tokenized instrument does not exit the securities regime simply because it also delivers non-financial or governance benefits.
When crypto assets become subject to an investment contract
The SEC reiterates that how an issuer markets and promotes an arrangement is critical to determining whether it constitutes an investment contract. A non-security crypto asset becomes subject to such a contract when it is offered in a way that induces an investment of money in a common enterprise, coupled with representations or promises of essential managerial efforts that reasonably lead purchasers to expect profits.
Reasonable expectations turn on all facts and circumstances, including the source, timing, and manner of statements. Explicit, detailed representations in whitepapers, public or private communications, or regulatory filings that describe how the issuer’s efforts will deliver profits are more likely to establish an investment contract than vague marketing language without a concrete plan.
The SEC emphasizes that subjecting a non-security asset to an investment contract does not transform the asset itself into a security. However, so long as purchasers reasonably connect the issuer’s representations and promised efforts to the asset, transactions involving that asset are securities transactions and must comply with registration or exemption requirements.
Separation from the issuer’s promises
A non-security crypto asset that was initially offered under an investment contract does not necessarily remain tied to that contract forever. It remains subject only while purchasers can reasonably expect profits from the issuer’s essential managerial efforts and believe that the issuer’s earlier representations remain connected to the asset.
Separation occurs once it is no longer reasonable to view the issuer’s promises as operative. This can happen at delivery or later. Non-exclusive indicators include full completion of the issuer’s roadmap or an inability or explicit refusal to complete promised efforts. In either case, investors could no longer reasonably expect profits from those efforts.
If an issuer has fulfilled its commitments, such as delivering key software functionalities, meeting development milestones, or open-sourcing code, the investment contract can cease to exist. Subsequent offers and sales of the same non-security asset by the issuer would not be securities transactions unless new commitments create a fresh investment contract.
Conversely, if an issuer fails to carry out promised essential efforts, or publicly abandons development, purchasers cannot reasonably expect those efforts to produce profits. In that scenario, the asset also separates from the investment contract, although the issuer may still face liability for material misstatements or omissions made during the offering.
The SEC clarifies that this separation analysis does not retroactively change the original legal status of the offering. If an initial sale of a non-security asset was conducted under an investment contract without registration or an exemption, the issuer may have violated the Securities Act even if the asset later separates from the contract.
To reduce legal uncertainty, the Commission encourages issuers to clearly outline their essential managerial efforts, including timelines, milestones, resource needs, and public disclosures when those efforts are completed. That said, clarity alone does not cure non-compliance if registration obligations are ignored.
Protocol mining and securities law
The interpretation next addresses whether protocol mining on proof-of-work networks involves securities transactions. Public, permissionless networks use cryptography and economic incentives to replace trusted intermediaries. Their underlying protocols encode consensus rules, technical requirements, and reward mechanisms to validate and settle transactions.
In proof-of-work (PoW) systems, miners operate nodes that supply computational power to solve cryptographic puzzles and propose new blocks. The first miner to solve a puzzle validates a batch of transactions and, once other nodes verify the solution, receives newly generated digital commodities as rewards. This design aligns network security with resource expenditure.
Miners may operate individually or join mining pools. Pool operators coordinate hardware, software, and security, and distribute rewards to participants, often charging a fee. Moreover, payouts are usually proportional to each miner’s contributed hash power, and miners generally remain free to exit a pool at any time.
The SEC’s interpretation covers two types of protocol mining: solo mining using a miner’s own resources, and pooled mining where a pool operator coordinates resources and distributes rewards. It concludes that these activities, as described, do not involve offers or sales of securities, so participants need not register transactions or rely on exemptions.
Under the Howey analysis, a digital commodity is not one of the financial instruments enumerated in the statutory definition of a security. Self-mining is characterized as an administrative or ministerial activity, where miners earn rewards directly from protocol rules rather than from the essential managerial efforts of others.
For mining pools, individual miners still perform the core work by contributing hash power. Pool operators’ functions are viewed as administrative and ministerial, not as essential managerial efforts that would give rise to a reasonable expectation of profits from their entrepreneurial activity. However, the SEC notes that arrangements in which miners passively rely on operators for computational resources could fall outside this interpretation.
Protocol staking and staking receipt tokens
The interpretation also examines protocol staking on proof-of-stake (PoS) networks. In PoS systems, node operators stake the network’s digital commodity to be programmatically selected as validators of new blocks. Selected validators earn newly minted tokens and a share of user transaction fees, subject to bonding and unbonding periods and potential slashing for misbehavior.
Participants can earn rewards by self-staking, delegating validation rights to third-party node operators while retaining control of assets, using custodial staking services, or engaging with liquid staking protocols that issue Staking Receipt Tokens. Liquid staking structures maintain liquidity for depositors while underlying assets remain locked for consensus.
The SEC’s interpretation applies to: self-staking by node operators; self-custodial staking directly with third-party validators; custodial arrangements where a custodian stakes on behalf of depositors but does not decide if or how much to stake; and liquid staking where providers stake deposited assets using their own or third-party nodes while issuing Staking Receipt Tokens. Ancillary services such as slashing coverage or alternative payout schedules are also considered.
In all of these covered scenarios, the SEC concludes that protocol staking does not involve the offer and sale of a security, and participants therefore do not need to register under the Securities Act or rely on exemptions. The underlying reasoning again turns on the absence of essential managerial efforts by a promoter from which investors reasonably expect profits.
Self-staking is categorized as administrative or ministerial: node operators stake their own assets and directly interact with the protocol. Owners delegating validation rights to third parties or using custodial services similarly do not rely on entrepreneurial efforts that would satisfy Howey’s profit-from-others prong, even though service providers may charge fees.
For liquid staking, providers act as agents in staking and do not determine whether, when, or how much to stake on behalf of depositors in a way that creates an investment scheme. Rewards accrue from protocol-level design, not from a provider’s essential managerial contributions. As a result, covered liquid staking structures and related services fall outside securities transaction status.
However, the status of Staking Receipt Tokens requires separate analysis. Where such a token simply represents a receipt for a non-security crypto asset not subject to an investment contract, the SEC concludes that its offer and sale do not involve a security. Generation, issuance, redemption, and secondary trading of such tokens do not trigger Securities Act registration.
By contrast, a Staking Receipt Token that represents a digital security or a non-security asset currently subject to an investment contract is itself a security. Additionally, the SEC notes that its conclusion for non-security receipts assumes that token issuers are not providing essential managerial efforts that create new profit expectations beyond the underlying staking mechanics.
Wrapping and redeemable wrapped tokens
The release then addresses the process known as wrapping, in which a custodian or cross-chain bridge operator (the Wrapped Token Provider) receives a deposited crypto asset and issues an equivalent quantity of Redeemable Wrapped Tokens on a one-for-one basis, without promising yield, profit, or additional services.
The Wrapped Token Provider holds the underlying asset so that the total redeemed and outstanding wrapped tokens are fully backed. The deposited asset is locked and cannot be transferred, lent, pledged, rehypothecated, or otherwise used. Holders of Redeemable Wrapped Tokens can redeem them one-for-one for the underlying asset, at which point the wrapped tokens are burned and the deposited asset is released.
Under this interpretation, the offer or sale of a Redeemable Wrapped Token that is merely a receipt for a non-security crypto asset not subject to an investment contract does not involve a securities offering. Participants in the creation, issuance, and redemption of such wrapped tokens therefore do not need to register those transactions or rely on exemptions.
Conversely, if the wrapped token represents a digital security or a non-security asset that is subject to an investment contract, it is itself categorized as a security. The SEC underscores that a wrapped token serving as a straightforward receipt lacks the economic characteristics of a security and does not alter rights or obligations associated with the deposited asset.
Wrapping is framed as an administrative or ministerial function designed to enable interoperability across networks and token standards. It does not, by itself, create a financial incentive beyond fixed one-for-one redeemability. That said, if additional features or promises were introduced, the arrangement could be subject to a separate Howey analysis.
Airdrops and the Howey investment of money prong
The SEC also examines certain airdrops through the lens of the Howey test, focusing on the first element: an investment of money. The interpretation covers only airdrops of non-security crypto assets where recipients do not provide money, goods, services, or other consideration to the issuer in exchange for the airdropped tokens.
Issuers routinely use airdrops to distribute assets free or at nominal cost to generate interest, expand usage, reward early adopters, promote applications, encourage community building, decentralize governance, or compensate participation. They select recipients based on holdings, platform usage, or other eligibility criteria, and sometimes require services such as social media engagement, though those service-based drops are expressly excluded from this interpretation.
The interpretation covers scenarios where recipients may have previously provided consideration to the issuer, but not in exchange for the airdropped asset. For example, users might have tested a network before any airdrop was announced, or already hold another asset at the time of an unannounced snapshot.
In covered airdrops, the SEC concludes that the non-security asset does not become subject to an investment contract because the “investment of money” requirement is not satisfied. Recipients provide no current consideration, and the issuer is not offering assets in exchange for payment or services. Consequently, these airdrop transactions do not require Securities Act registration or exemptions.
Illustrative examples include: a surprise distribution to holders of a specified asset; a retroactive drop to users of a test environment when no prior promise was made; and a free airdrop to users of an application who meet eligibility criteria based on past behavior, where the drop was not announced in advance.
The SEC stresses that this interpretation does not address airdrops of digital securities and does not alter the broader legal understanding of what constitutes a “sale” under Federal securities statutes. Moreover, airdrops that involve explicit exchanges of consideration, such as performance of services, remain outside the scope of the guidance.
Other legal regimes and economic impact
The Office of Management and Budget has designated this interpretation as a “major rule” and reviewed it as a significant regulatory action. Because the document is interpretive rather than legislative, it may take effect immediately without notice and comment, focusing specifically on Federal securities laws and related CFTC guidance under the Commodity Exchange Act.
The SEC clarifies that the interpretation does not aim to interfere with separate legal frameworks such as tax law or anti-money laundering obligations, which fall outside the scope of this release. However, market participants must continue to consider those regimes independently.
Economically, the SEC expects the interpretation to provide substantial clarity on how Federal securities laws apply to different types of crypto assets and to transactions such as protocol mining, protocol staking, wrapping, and airdrops. The document does not create new legal duties for issuers or investors in digital securities and related products but may shift behavior where current practices diverge from the Commission’s views.
The Commission anticipates that clearer guidance will reduce legal uncertainty and compliance costs, potentially encouraging more compliant issuance of digital securities and related instruments. Moreover, increased clarity for non-security assets could support greater activity, competition, and innovation across distributed ledger technologies.
Some issuers of digital securities or crypto asset-related securities may need to adjust their business models, bear registration or exemption costs, and enhance disclosures. Investors could also reallocate capital as they better understand when a crypto asset is a security or is offered under an investment contract.
Overall, the SEC expects this joint interpretation with the CFTC to improve pricing efficiency, bolster capital formation, and foster competition, while providing a more predictable environment for innovation and entrepreneurship across US crypto markets under the evolving landscape of crypto asset regulation.
