I. Overview

On March 17, the Securities and Exchange Commission (SEC or Commission) issued an interpretation on the application of the federal securities laws to crypto assets, with the Commodities Futures Trading Commission (CFTC) providing related guidance on certain aspects of the Interpretation.¹ The Interpretation sets forth a framework addressing crypto asset classification, mining, staking, wrapping, and airdrops. The Commission provided its interpretation of how the Howey² test applies to crypto assets and transactions involving crypto assets.³ Although the Interpretation reflects a significant shift in the SEC’s historic approach to crypto assets, it is not a binding, formal rulemaking. However, as a Commission interpretation, it carries more weight than Staff-level statements, and in several areas, it reaffirms positions the SEC Staff has articulated in prior statements, such as the January 2026 Staff statement on tokenized securities.⁴

Key Changes:

• The Commission classifies crypto assets into five categories based on their characteristics, uses, and functions; three of the five categories are deemed by the Commission to be outside the definition of a security. 
• A non-security crypto asset can be sold subject to an investment contract, and, therefore, the transaction can acquire security status. But this does not transform the non-security crypto asset itself into a security. Whether an investment contract is formed is based primarily on the representations and promises made by the issuer. 
• The Commission lays out a framework for how a crypto asset that was sold subject to an investment contract can cease being subject to one. This depends on whether the issuer’s representations and promises have been fulfilled or abandoned or whether they continue to be reasonable (i.e., whether a purchaser would reasonably expect profits based on representations or promises from the issuer).  
• In assessing investment contract status, the Commission focuses on the representations and promises of the issuer—not third parties—and explains that “it would not be reasonable for a purchaser to expect profits based on representations or promises made by third parties, such as unaffiliated [parties promoting] the relevant crypto system or holders of the relevant crypto asset, unless the representations or promises are authorized by the issuer and conveyed to purchasers.”⁵
• The Commission narrows its previous view of the Howey test, and now affirms (in line with courts) that a common enterprise is a required element of an investment contract.⁶ As a result, it may be more difficult for secondary market transactions to satisfy Howey and meet the definition of security due to the narrower interpretation of the common-enterprise requirement. 

II. Classification of Crypto Assets 

Noting that “virtually any type of security, good, service, right, or interest can be represented in a digital format as a crypto asset[,]” the Commission classifies crypto assets into five categories “based on their characteristics, uses, and functions”:⁷ (1) digital commodities, (2) digital collectibles, (3) digital tools, (4) stablecoins, and (5) digital securities. The first three categories are generally not securities under the federal securities laws by classification. Most of the currently traded crypto assets will fall under the non-security classifications. However, non-security crypto assets can be offered and sold subject to an investment contract, turning their sale into a securities offering that is subject to registration under the Securities Act of 1933⁸ or an available exemption. The Interpretation provides viable paths to launch certain products in the United States that many firms previously hesitated to pursue due to perceived regulatory risk.

a. Digital Commodities

A digital commodity is a “crypto asset that is intrinsically linked to and derives its value from the programmatic operation of a crypto system that is ‘functional,’ as well as supply and demand dynamics, rather than from the expectation of profits from the essential managerial efforts of others.”⁹ It does not have intrinsic economic properties or rights (e.g., generating yield or rights to future income, profits, or assets). Thus, a digital commodity is generally not a security. 

The Commission lists certain crypto assets that it views as digital commodities, including crypto assets that the agency previously alleged were securities in public enforcement and litigation matters. Most of the crypto assets listed underlie futures contracts that trade on designated contract markets regulated by the CFTC. The Commission also listed two additional assets as examples of digital commodities that do not underlie a futures contract, noting that the presence of a futures market is not required for digital commodity classification.¹⁰ These include Algorand (ALGO), Aptos (APT), Avalanche (AVAX), Bitcoin (BTC), Bitcoin Cash (BCH), Cardano (ADA), Chainlink (LINK), Dogecoin (DOGE), Ether (ETH), Hedera (HBAR), LBRY Credits (LBC), Litecoin (LTC), Polkadot (DOT), Shiba Inu (SHIB), Solana (SOL), Stellar (XLM), Tezos (XTZ), and XRP (XRP).¹¹

Importantly, the SEC notes that for a crypto asset to be a digital commodity, its programmed purpose must be to be used as part of the blockchain’s consensus mechanism, or it must convey governance rights over technical or governance matters to crypto asset holders.¹²

b. Digital Collectibles 

A digital collectible is “a crypto asset that is 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, characters, current events, or trends, among other things.”¹³ It does not have intrinsic economic properties or rights (e.g., generating yield or rights to future income, profits, or assets). These include non-fungible tokens and meme coins, which typically derive their value from their “artistic, entertainment, social, or cultural significance.”¹⁴ Digital collectibles are generally not securities; however, the offer or sale of a digital collectible that is fractionalized or otherwise enables purchasers to acquire a fractional interest may constitute the offer or sale of a security if it involves essential managerial efforts from which a purchaser would reasonably expect to derive profits.

c. Digital Tools

A digital tool is “a crypto asset that performs a practical function, such as a membership, ticket, credential, title instrument, or identity badge.”¹⁵ It is nontransferable (referred to as “soul-bound”) and usually used to perform practical functions in crypto systems, deriving its value from its practical functionality.¹⁶ It does not have intrinsic economic properties or rights (e.g., generating yield or rights to future income, profits, or assets). These are generally not securities and include Ethereum Name Service domain names, attestations, and event tickets.

d. Stablecoins 

A stablecoin is a crypto asset that is designed to maintain a stable value relative to a reference asset like the U.S. dollar. “Payment stablecoins,” as defined by the GENIUS Act, are not themselves securities, but they may be offered subject to an investment contract and thus fall under federal securities laws.¹⁷ Beyond payment stablecoins, other stablecoins may be securities depending on their characteristics. The manner in which such stablecoins are offered is key in determining security status.

e. Digital Securities (i.e., tokenized securities)

The Commission Interpretation affirms the Staff’s previously issued statement regarding tokenized securities, noting that tokenization is a change in format, not substance.¹⁸ It explains that “[a]ll devices and instruments that have the economic characteristics of a security are securities regardless of format or label.”¹⁹ Financial instruments that are defined as a “security” and are represented as crypto assets are tokenized securities. Tokenized securities are generally either tokenized by or on behalf of the issuer of such securities or tokenized by third parties unaffiliated with the issuer.²⁰ Solely providing nonfinancial benefits, such as governance rights or network security benefits, does not remove the security status of a tokenized security if it otherwise has the economic characteristics of a security.²¹ 

III. Crypto Assets That Are Subject to an Investment Contract 

a. How Crypto Assets Become Subject to an Investment Contract

A non-security crypto asset can become subject to an investment contract when “an issuer offers it by inducing an investment of money in a common enterprise with representations or promises to undertake essential managerial efforts from which a purchaser would reasonably expect to derive profits.”²² The Interpretation explains that the issuer’s representations or promises to engage in managerial efforts are critical. Without the issuer’s representations or promises, a purchaser could not reasonably expect profits from the transaction.²³ The facts and circumstances of each case will dictate whether it’s reasonable for a purchaser to expect profits based on the representations or promises made by the issuer.²⁴ 

Source of Representations or Promises: A purchaser can rely on the representations and promises made by or on behalf of the issuer, but it cannot reasonably rely on representations or promises made by third parties (unless they are authorized by the issuer).²⁵  

Timing of Representations or Promises: The timing of the representations or promises determines whether the purchaser’s expectations are reasonable—they must be made to the purchaser before or at the time of the issuer’s offer or sale to the purchaser.²⁶ Post-sale representations or promises would not turn a non-security crypto asset sale into an investment contract.²⁷

Manner of Representations or Promises: A purchaser can expect profits based on representations or promises made in written or oral agreements, public communications through the issuer’s usual communication means (e.g., the issuer’s website or social media accounts), private communications between the issuer and the purchaser, public regulatory filings, and white papers or other documents the issuer publishes.²⁸ Beyond these, whether the purchaser’s expectations of profit are reasonable depends on the means and breadth of dissemination of the representations or promises and the issuer’s communication practices.²⁹

Explicitness of Representations or Promises: A purchaser can more reasonably expect profits when representations or promises are “explicit and unambiguous as to the essential managerial efforts to be undertaken by the issuer, contain sufficient details demonstrating the issuer’s ability to implement the proposed project, and explain how the issuer’s efforts will produce the profits that purchasers reasonably expect.”³⁰ A detailed business plan including things like detailed milestones, a timeline, information about personnel, sources of funding, and other resources needed to meet milestones would reasonably create an expectation of profit. Vague representations or promises that do not lay out an actionable business plan (e.g., absence of milestones, funding, plans for obtaining resources) would not create a reasonable expectation of profit. 

b. Secondary Market Transactions

A non-security crypto asset that was subject to an investment contract in the initial offer or sale does not necessarily remain subject to the investment contract in secondary market transactions. Whether the non-security crypto asset remains subject to the investment contract depends on whether the purchasers would reasonably expect the issuer’s representations or promises with respect to the asset to remain in place. Secondary market offers and sales of non-security crypto assets subject to an investment contract would constitute securities transactions “until the non-security crypto asset separates from the issuer’s representations or promises[.]”³¹   

c. The Separation of a Non-Security Crypto Asset From the Issuer’s Representations or Promises 

“Separation” occurs when a non-security crypto asset sold subject to an investment contract is no longer subject to the investment contract. Separation can occur “at any time after the offer of the associated investment contract, such as immediately upon delivery of the non-security crypto asset to purchasers or at a future date.”³² Here, too, whether a crypto asset can cease to be subject to an investment contract depends entirely on whether the issuer’s representations and promises have been fulfilled or abandoned or whether they continue to be reasonable.³³

Fulfillment of Representations or Promises: Once an issuer of a non-security crypto asset offered or sold pursuant to an investment contract fulfills its representations or promises, the asset is no longer subject to that investment contract—even if the issuer continues to engage in nonessential or nonmanagerial efforts. Whether those representations or promises have been fulfilled depends on how the issuer defined or described the essential managerial efforts in marketing the investment contract. For example, if the issuer promised to achieve decentralization or specified functionality, fulfillment is assessed based on the issuer’s own descriptions, not general market conceptions of decentralization or functionality. 

Failure to Satisfy Representations or Promises: If purchasers no longer reasonably expect the issuer to fulfill or continue performing the essential managerial efforts it represented or promised—such as when sufficient time has passed without performance or the issuer has not indicated an intent to perform or abandons the project—the asset likewise ceases to be subject to the investment contract because expectations of profits are no longer reasonable. However, the issuer remains liable for material misstatements or omissions relating to its failure to perform the promised efforts, as the antifraud provisions of the securities laws continue to apply even after the investment contract has separated from the underlying non-security crypto asset.

IV. Mining, Staking, Wrapping, and Airdrops 

The Interpretation addresses mining, staking, wrapping, and airdrops. When these activities are conducted in the manner and under the circumstances described, they do not involve the offer or sale of a security. 

a. Protocol Mining 

Protocol mining—the consensus mechanism used to validate blockchain transactions and add new blocks to a blockchain by solving complex mathematical equations in exchange for crypto assets—generally does not involve the offer or sale of a security. In both self- and pool mining, the miner’s work is administrative or ministerial in nature, and any crypto assets earned are compensation for performing that work under the protocol rather than profits derived from the managerial efforts of others.³⁴ However, if miners passively rely on the pool operator to supply the computational resources, the pool operator’s activities are essential managerial efforts that may be considered part of an investment contract and thus a security.³⁵

b. Protocol Staking 

Protocol staking—where users lock crypto assets to support transaction validation—generally does not involve the offer or sale of a security. The Interpretation treats staking as protocol‑defined administrative or ministerial activity, with rewards viewed as compensation for services rather than profits from the managerial or entrepreneurial efforts of others. This analysis applies whether staking is performed directly by a crypto asset holder acting as a node operator or if it is facilitated by a third party acting solely in an agency capacity³⁶ so long as the third party exercises no discretion over whether, when, or how assets are staked and does not set or guarantee returns.

The Interpretation also indicates that common ancillary features offered by staking service providers—such as slashing coverage,³⁷ early unbonding,³⁸ alternate reward payment schedules,³⁹ or aggregation—do not change the analysis if they remain administrative and do not introduce fixed, guaranteed, or enhanced returns. 

Staking receipt tokens are treated as non‑securities when they function solely as receipts evidencing ownership of staked non‑security crypto assets and the right to protocol‑defined rewards. By contrast, a receipt token linked to a digital security, to a crypto asset subject to an investment contract, or to additional yield‑generating activity provided by a liquid staking service may itself involve the offer or sale of a security.

c. Wrapping 

“Wrapping” crypto assets—the process by which a user can deposit a crypto asset with a cross-chain bridge or custodian and obtain an equivalent amount of that asset represented on another blockchain—is only an administrative or ministerial function used to facilitate interoperability between different blockchains and, thus, does not involve an investment contract or the offer or sale of a security.⁴⁰ In this context, the wrapped crypto asset functions solely as a one‑for‑one receipt evidencing ownership of the deposited asset and does not alter the rights, obligations, or economic benefits of the underlying crypto asset.⁴¹ Each wrapped crypto asset must be fully backed on a one‑for‑one basis by the deposited asset, which remains locked and may not be transferred, lent, pledged, or reused by the custodian for their own purposes⁴² (such as posting it as collateral). Where the crypto asset represents a digital security or a crypto asset that remains subject to an investment contract, the offer or sale of a wrapped crypto asset is a securities transaction and the wrapped crypto asset itself is treated as a security.⁴³ 

d. Airdrops

Airdrops—where a crypto asset issuer distributes crypto assets to users of its protocol, application, or ecosystem to build awareness of a blockchain, reward users, support decentralization, or promote network participation—do not constitute the offer or sale of a security as long as there is no bargained-for consideration. Absent bargained-for consideration, there is no investment of money and thus no investment contract. Recipients cannot know ahead of time what basis or activity will result in an airdrop. If recipients can foresee the basis for an airdrop and take action expecting to receive it, that would constitute bargained‑for consideration and, therefore, the airdrop would be the offer or sale of a security.⁴⁴ 

V. CFTC Jurisdiction 

The Interpretation notes that some of the digital commodities identified by the Commission underlie futures contracts that trade on designated contract markets subject to CFTC oversight.⁴⁵ The Commission and CFTC note that although these specific crypto assets were chosen as examples, a crypto asset need not underlie a futures contract to be classified as a digital commodity. Rather, the classification turns on whether the asset derives its value from the programmatic operation of a functional crypto system and supply‑and‑demand dynamics, rather than from the expectation of profits based on the essential managerial efforts of others. Because the CFTC regulates the derivatives markets and not the spot markets for the underlying physical commodities, whether it has jurisdiction will depend on whether the relevant activity involves futures or derivatives contracts on the digital commodities. 

VI. Practical Implications for Market Participants 

The Interpretation is particularly helpful for market participants, as it outlines potential pathways forward that can reduce or mitigate regulatory risk under the federal securities laws. By clarifying how the Commission views certain activities and structures, the guidance creates an opportunity for firms to launch novel products and services in the United States and to reassess business models, disclosures, and broader regulatory strategies. To the extent a market participant has feedback on the Interpretation, it should consider submitting comments. 

Trading Venues and Intermediaries: The Interpretation provides a pathway for a crypto asset to separate from an investment contract in secondary markets by focusing Howey’s expectation-of-profits requirement on an issuer’s promises at the time of an offering rather than on subsequent crypto asset trading. Under this approach, a non‑security crypto asset is subject to an investment contract only if purchasers would still reasonably expect profits from the issuer’s current representations or promises. Once those expectations no longer exist, the crypto asset giving rise to the investment contract separates.⁴⁶ 

Staking, Wrapping, and Infrastructure Services: Staking, wrapping, and infrastructure services do not generally involve the offer or sale of securities. Under the Interpretation, staking providers must not have any discretion over staking decisions and may not offer fixed or guaranteed returns. Wrapping and bridging services must maintain one‑for‑one redemption, refrain from reusing customer assets, and limit their role to administrative functions. These provisions suggest that a range of technology‑driven infrastructure services may be offered in the United States without triggering the federal securities laws, where providers act solely as service providers and do not assume managerial, discretionary, or profit‑generating roles. At the same time, market participants whose products exceed these limits should not assume the Interpretation’s conclusions apply, and residual regulatory risk remains.⁴⁷  

Crypto Asset Issuers: How crypto asset issuers market and document crypto asset launches can determine both whether an investment contract is created and when it ends. Issuer statements in white papers, on websites, on social media, in investor materials, in agreements, and in other issuer‑attributable communications—especially promises about future functionality, milestones, timelines, and expected benefits to crypto asset holders—are central to the analysis. Issuers seeking to show that an investment contract has separated from the underlying crypto asset will therefore need a clear public record of what was promised, whether and when those promises were completed or abandoned, and when that outcome was publicly disclosed to the market.⁴⁸ 

Market Participants Generally: For the broader market, the Interpretation also functions as a jurisdictional road map. The Commission expressly recognizes that certain non‑security crypto assets may be commodities, and the CFTC, in agreement, confirms that it will administer the Commodity Exchange Act consistent with the Commission’s Interpretation. At the same time, the Interpretation does not alter their respective statutory authorities. Market participants should therefore view the Interpretation as an effort to align analytical frameworks across agencies, not as a change of jurisdiction.⁴⁹ Additionally, market participants should keep in mind that this Interpretation is a Commission interpretation, not a rule, that can be rescinded by future SEC leadership without Administrative Procedure Act rulemaking. Market participants should therefore remain mindful of potential future compliance and risk-management concerns in order to mitigate any potential regulatory risk or exposure in the future.⁵⁰