SEC and CFTC Issue Interpretation Regarding the Application of Federal Securities Laws to Crypto Assets

Summary

On March 17, 2026, the Securities and Exchange Commission and Commodity Futures Trading Commission issued a joint interpretation[1] regarding the application of the federal securities laws to certain types of crypto assets and transactions. The interpretation:

• establishes a five-part token taxonomy for crypto assets based on their characteristics, uses and functions, and analyzes each category under the “security” definition;
• addresses how a non-security crypto asset may become subject to, and cease to be subject to, an “investment contract”; and
• clarifies the application of federal securities laws to certain crypto activities including airdrops, protocol mining, protocol staking and the “wrapping” of a non-security crypto asset, consistent with existing SEC staff guidance.[2]

Overview

The interpretation provides additional clarity regarding the SEC’s and CFTC’s views on the application of the federal securities laws to crypto assets,[3] and is intended to complement congressional endeavors to codify a comprehensive digital asset market structure framework. While most crypto assets are not themselves securities under the new guidance, the SEC reiterates its view that a non-security crypto asset may be sold as part of an “investment contract” (and, therefore, become subject to the securities laws) depending on the representations or promises made to purchasers to undertake future managerial efforts. Importantly, the interpretation also provides guidance as to when a crypto asset that was initially offered and sold as part of an investment contract may cease to be subject to an investment contract.

The CFTC joined the interpretation to provide guidance that the CFTC and its staff will administer the Commodity Exchange Act consistent with the interpretation, and that certain non-security crypto assets could meet the definition of “commodity” under the Commodity Exchange Act.

Crypto Asset Taxonomy

The interpretation classifies crypto assets into five groups based on their characteristics, uses, and functions. It further categorizes them into securities versus non-security crypto assets.

In each case, the determination will depend on a facts-and-circumstances test. In particular, the existence of an “investment contract” pursuant to which a non-security crypto asset may be offered and sold as a security will depend on the representations or promises made to purchasers, as further discussed below.

Crypto Assets Subject to an Investment Contract

A non-security crypto asset may become subject to an investment contract under the Howey test[8] when an “issuer” offers the crypto asset for an investment of money in a common enterprise and makes representations or promises to undertake essential managerial efforts which would induce purchasers to reasonably expect profits.[9] Consistent with statements of Chairman Paul S. Atkins,[10] the SEC notes that a purchaser’s “reasonable profit expectations depend on the issuer’s representations or promises to engage in such essential managerial efforts.” Whether it would be reasonable for a purchaser to expect profits based on such representations or promises to engage in managerial efforts depends on the specific facts and circumstances, with an emphasis on the source of the representations or promises, when they are made, the medium by which they are communicated, and the level of detail provided. For example, according to the interpretation, representations or promises that are vague or that contain no semblance of an actionable business plan, such as those lacking milestones, funding, or other plans for needed resources, likely would not create reasonable expectations of profit.

Importantly, a non-security crypto asset may cease to be subject to an investment contract when purchasers can no longer reasonably view the issuer’s representations or promises as remaining attached to the asset. For example, this could occur because the issuer has completed the promised developmental milestones of the network associated with the crypto asset or, conversely, has publicly abandoned them. In either case, later transactions in the token would fall outside the scope of the federal securities laws. Whether an issuer fulfills its representations or promises depends on how it defines or otherwise describes such efforts in marketing and promoting the investment contract. For example, if the issuer represents or promises to achieve decentralization or certain functionality, whether the issuer has achieved decentralization or functionality would be based on how the issuer defined or otherwise described these terms, not a general market conception of what constitutes decentralization or functionality. A non-security crypto asset that has been subject to an investment contract does not remain subject to the associated investment contract in secondary market transactions if purchasers would not reasonably expect such representations or promises to remain connected to the non-security crypto asset.

To the extent issuers make representations or promises about essential managerial efforts they plan to undertake, the SEC encourages issuers to clearly and in sufficient detail outline those efforts, provide a timeline and milestones for completing those efforts, explain the resources needed to complete those efforts, and publicly disclose the completion of those efforts.

Treatment of Certain Crypto Activities

The interpretation clarifies that certain crypto asset-related activities generally do not involve the offer or sale of securities, including:

• Crypto network validation activities, such as proof-of-work and proof-of-stake activities (including solo, self-custodial, custodial, and liquid staking arrangements);[11]
• the offer and sale of a “staking receipt token” (defined as a receipt for a non-security crypto asset that is not subject to an investment contract);
• the “wrapping” of crypto assets (the process through which a person deposits crypto assets with a custodian or a cross-chain bridge); and
• certain “airdrops”—specifically, those involving the dissemination of non-security crypto assets by issuers to recipients who do not provide the issuer with money, goods, services, or other consideration in exchange for the airdropped asset.

Conclusion

The interpretation marks an important step towards providing clarity on the application of the federal securities laws to crypto assets, consistent with recent statements and SEC Staff guidance. Nonetheless, the securities law analysis of crypto assets and crypto assets transactions remains fact-specific, and market participants should carefully review the interpretation and other guidance when assessing their particular situation.

In his remarks, Chairman Paul S. Atkins noted that the interpretation is “a beginning and not the end.”[12] The SEC is working on a broader exemptive rulemaking that would draw from congressional work over recent years, particularly from the CLARITY Act.[13] This rulemaking could include a “startup exemption,” which could be a time-limited registration exemption for offerings of investment contracts involving certain crypto assets; a “fundraising exemption,” which could be a registration exemption for investment contracts involving certain crypto assets and small offerings; an “investment contract safe harbor,” which, consistent with the framework set out in the interpretation, could clarify as to when an issuer has completed or otherwise permanently ceased its essential managerial efforts.

A proposed rule for public comment is expected to be released in the near future. In the meantime, the SEC is accepting input regarding the interpretation.