SEC Chairman: Proposes Establishing Four Types of Token Regulatory Frameworks to End the "One-Size-Fits-All" Era

Author: Paul S. Atkins, Chairman of the U.S. Securities and Exchange Commission

Translation: Luffy, Foresight News

Original Title: Latest Speech by U.S. SEC Chairman: Farewell to "One-Size-Fits-All", Four Token Regulatory Standards to Be Established

Ladies and gentlemen, good morning! Thank you for your warm introduction and for inviting me here today as we continue to explore how the United States can lead the next era of financial innovation.

Recently, when discussing America's leadership in the digital financial revolution, I described "Project Crypto" as a regulatory framework we have established to match the vitality of American innovators (Note: The U.S. Securities and Exchange Commission launched the Project Crypto initiative on August 1 this year, aiming to update securities rules and regulations so that U.S. financial markets can achieve on-chain transformation). Today, I would like to outline the next steps in this process. At the core of this step is adhering to the principles of fundamental fairness and common sense in the process of applying federal securities laws to crypto assets and related transactions.

In the coming months, I expect the SEC (U.S. Securities and Exchange Commission) to consider establishing a token classification system based on the long-standing Howey investment contract securities analysis, while recognizing the boundaries of applicability in our laws and regulations.

The content I am about to elaborate on is largely based on the pioneering work carried out by the Crypto Special Working Group led by Commissioner Hester Peirce. Commissioner Peirce has built a framework aimed at coherent and transparent securities law regulation of crypto assets based on economic substance rather than slogans or panic. I want to reiterate here that I agree with her vision. I value her leadership, hard work, and persistent efforts over the years in advancing these issues. Having worked with her for a long time, I am very pleased that she agreed to take on this task.

My speech will revolve around three themes: First, the importance of a clear token classification system; second, the logic of applying the Howey test and recognizing the fact that investment contracts may terminate; third, what this means in practice for innovators, intermediaries, and investors.

Before I begin, I also want to reiterate: Although SEC staff are diligently drafting rule amendments, I fully support Congress's efforts to incorporate a comprehensive crypto market structure framework into statutory law. My vision is consistent with the bills currently under consideration in Congress, aiming to supplement rather than replace Congress's critical work. Commissioner Peirce and I have made supporting Congressional action a priority and will continue to do so.

It has been a pleasure working with Acting Chair Pham, and I wish CFTC Chairman nominee Mike Selig, nominated by President Trump, a smooth and swift confirmation. My experience working with Mike over the past few months has convinced me that we are both committed to helping Congress quickly advance bipartisan market structure legislation and submit it to President Trump for signature. Nothing is more effective in preventing regulatory abuse than sound legal provisions enacted by Congress.

A Decade Full of Uncertainty

If you are tired of hearing the question "Are crypto assets securities?", I completely understand. The confusion arises because "crypto assets" is not a term defined in federal securities law; it is a technical description that only explains the method of record-keeping and value transfer, but says little about the legal rights attached to a specific instrument or the economic substance of a specific transaction—precisely the key factors in determining whether an asset is a security.

In my view, most cryptocurrencies traded today are not securities in themselves. Of course, a specific token may be sold as part of an investment contract in a securities offering—this is not a radical view, but a direct application of securities law. The statutory definition of securities lists common instruments such as stocks, notes, and bonds, and adds a broader category: "investment contracts." The latter describes the relationship between parties, not a permanent label attached to an item. Unfortunately, the statute does not define it either.

Investment contracts can be fulfilled or terminated. One cannot simply assume that an investment contract is always valid just because the underlying asset continues to trade on the blockchain.

However, in recent years, too many have advocated the view that if a token was ever the subject of an investment contract, it is forever a security. This flawed view even further presumes that every subsequent transaction of the token (regardless of where or when) is a securities transaction. I find it difficult to reconcile this view with the statutory text, Supreme Court precedent, or common sense.

Meanwhile, developers, exchanges, custodians, and investors have been groping in the fog, lacking SEC guidance and instead facing obstacles. The tokens they see serve as payment tools, governance tools, collectibles, or access keys, while others are hybrid designs that are hard to fit into any existing category. Yet, for a long time, the regulatory stance has treated all these tokens as securities.

This view is neither sustainable nor practical. It brings huge costs with little benefit; it is unfair to market participants and investors, inconsistent with the law, and has triggered a wave of entrepreneurs moving offshore. The reality is: If the U.S. insists on making every on-chain innovation navigate the minefield of securities law, these innovations will migrate to jurisdictions more willing to distinguish between different types of assets and more willing to set rules in advance.

Instead, we will do what regulators should do: draw clear boundaries and explain them in clear language.

Core Principles of Project Crypto

Before elaborating on my views regarding the application of securities law to cryptocurrencies and transactions, I want to clarify two fundamental principles that guide my thinking.

First, whether a stock is represented by a paper certificate, a Depository Trust & Clearing Corporation (DTCC) account record, or a token on a public blockchain, it is still essentially a stock; a bond does not cease to be a bond just because its payment flow is tracked by a smart contract. Securities are always securities, regardless of their form. This is easy to understand.

Second, economic substance prevails over labels. If an asset essentially represents a claim on a company's profits and is issued with a promise of reliance on others' core managerial efforts, then calling it a "token" or "NFT" does not exempt it from current securities law. Conversely, the fact that a token was once part of a financing transaction does not magically transform it into the stock of an operating company.

These principles are not novel. The Supreme Court has repeatedly emphasized that the substance of a transaction, not its form, determines whether securities law applies. What is new is the scale and speed at which asset types evolve in these new markets. This pace requires us to respond flexibly to market participants' urgent need for guidance.

A Coherent Token Classification System

Based on the above, I would like to outline my current views on various types of crypto assets (please note, this list is not exhaustive). This framework is the result of months of roundtables, hundreds of meetings with market participants, and hundreds of public written comments.

• First, regarding the bills currently under consideration in Congress, I believe that "digital commodities" or "network tokens" are not securities. The value of these crypto assets is essentially related to and arises from the programmatic operation of a "fully functional" and "decentralized" crypto system, rather than from the expectation of profits derived from others' key managerial efforts.

• Second, I believe that "digital collectibles" are not securities. These crypto assets are intended for collection and use, and may represent or grant the holder rights to digital expressions or references to artworks, music, videos, trading cards, in-game items, or internet memes, people, current events, and trends. Buyers of digital collectibles do not expect to profit from others' day-to-day managerial efforts.

• Third, I believe that "digital utilities" are not securities. These crypto assets have practical functions, such as memberships, tickets, vouchers, proofs of ownership, or identity badges. Buyers of digital utilities do not expect to profit from others' day-to-day managerial efforts.

• Fourth, "tokenized securities" are, and will continue to be, securities. These crypto assets represent ownership of financial instruments listed in the definition of "securities", maintained on a crypto network.

The Howey Test, Commitments, and Termination

Although most crypto assets themselves are not securities, they may be part of or subject to investment contracts. These crypto assets often come with specific statements or commitments, requiring the issuer to perform managerial duties, thus meeting the requirements of the Howey test.

The core of the Howey test is: investing money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others. The purchaser's expectation of profit depends on whether the issuer has made statements or commitments to undertake core managerial efforts.

In my view, these statements or commitments must clearly and unambiguously specify the core managerial efforts the issuer will undertake.

The next question is: How can non-security crypto assets be separated from investment contracts? The answer is simple yet profound: The issuer either fulfills the statements or commitments, fails to do so, or the contract is terminated for other reasons.

To help everyone better understand, I want to talk about a place in the rolling hills of Florida. I am very familiar with it from my childhood; it was once the site of William J. Howey's citrus empire. In the early 20th century, Howey purchased over 60,000 acres of undeveloped land, planting orange and grapefruit groves beside his mansion. His company sold orchard plots to individual investors and was responsible for planting, harvesting, and selling the fruit for them.

The Supreme Court reviewed Howey's arrangement and established the test for defining investment contracts, which has influenced generations. But today, Howey's land has undergone dramatic changes. The mansion he built in Lake County, Florida, in 1925 still stands a century later, hosting weddings and other events, while most of the citrus groves that once surrounded it have disappeared, replaced by resorts, championship golf courses, and residential communities—now an ideal retirement community. It is hard to imagine anyone standing on these fairways and cul-de-sacs today would consider them securities. Yet, over the years, we have seen the same test rigidly applied to digital assets that have undergone equally profound transformations, still bearing the label from their issuance as if nothing had changed.

The land around the Howey mansion was never a security itself; it became the subject of an investment contract through a specific arrangement, and when that arrangement ended, it was no longer subject to the investment contract. Of course, despite the complete change in the business on the land, the land itself remained unchanged.

Commissioner Peirce's observation is very accurate: A project's token issuance may initially involve an investment contract, but these commitments are not valid forever. Networks mature, code is deployed, control becomes decentralized, and the issuer's role diminishes or disappears. At some point, purchasers no longer rely on the issuer's core managerial efforts, and most token transactions are no longer based on a "reasonable expectation that a team is still in charge." In short, a token does not remain a security forever just because it was once part of an investment contract transaction, just as a golf course does not become a security simply because it was once part of a citrus grove investment plan.

When an investment contract can be deemed fulfilled or terminated according to its terms, tokens may continue to be traded, but these transactions do not become securities transactions merely because of the token's origin story.

As many of you know, I strongly support super apps in the financial sector—applications that allow custody and trading of multiple asset classes under a single regulatory license. I have asked SEC staff to prepare recommendations for SEC consideration: to allow tokens related to investment contracts to be traded on platforms not regulated by the SEC, including intermediaries registered with the Commodity Futures Trading Commission (CFTC) or subject to state regulatory regimes. While financing activities should still be regulated by the SEC, we should not stifle innovation and investor choice by requiring that underlying assets can only be traded in a specific regulatory environment.

Importantly, this does not mean that fraudulent behavior suddenly becomes acceptable or that the SEC's attention is diminished. Anti-fraud provisions still apply to false statements and omissions related to the sale of investment contracts, even if the underlying asset itself is not a security. Of course, to the extent these tokens are commodities in interstate commerce, the CFTC also has anti-fraud and anti-manipulation authority and can take action against misconduct in these asset trades.

This means our rules and enforcement will align with the economic reality that "investment contracts may terminate and networks can operate independently."

Crypto Regulatory Actions

In the coming months, as envisioned by the bills currently under consideration in Congress, I hope the SEC will also consider a series of exemptions to establish tailored issuance regimes for crypto assets that are part of or subject to investment contracts.

I have asked staff to prepare recommendations for SEC consideration, aimed at facilitating financing and inclusive innovation while ensuring investor protection.

By streamlining this process, innovators in the blockchain space can focus on development and user engagement rather than groping through the maze of regulatory uncertainty. Moreover, this approach will foster a more inclusive and vibrant ecosystem, allowing smaller and less-resourced projects to experiment and thrive freely.

Of course, we will continue to work closely with the CFTC, banking regulators, and relevant Congressional departments to ensure that non-security crypto assets have appropriate regulatory frameworks. Our goal is not to expand the SEC's jurisdiction, but to ensure that financing activities flourish while investors are protected.

We will continue to listen to all voices. The Crypto Special Working Group and relevant departments have held multiple roundtables and reviewed a large number of written comments, but we need more feedback. We need input from investors, developers concerned about code delivery, and traditional financial institutions eager to participate in on-chain markets but unwilling to violate rules designed for the paper era.

Finally, as I mentioned earlier, we will continue to support Congress's efforts to incorporate a sound market structure framework into statutory law. Although the SEC can provide reasonable views under current law, future SECs may still change direction. This is why tailored legislation is so important, and why I am happy to support President Trump's goal of enacting a crypto market structure bill by the end of the year.

Integrity, Comprehensibility, and the Rule of Law

Now, I want to make it clear what this framework does not include. It is not a promise by the SEC to relax enforcement—fraud is fraud. While the SEC protects investors from securities fraud, there are many other federal regulators capable of overseeing and preventing illegal conduct. That said, if you raise funds by promising to build a network and then abscond with the money, we will find you and take the toughest action permitted by law.

This framework is a commitment to integrity and transparency. For entrepreneurs who want to start businesses in the U.S. and are willing to comply with clear rules, we should not respond with shrugs, threats, or subpoenas; for investors trying to distinguish between buying tokenized stocks and buying game collectibles, we should not offer only a complex web of enforcement actions.

Most importantly, this framework reflects a humble recognition of the SEC's own jurisdictional boundaries. Congress enacted securities laws to address a specific problem—people entrusting money to others based on promises made on the integrity and ability of others. These laws were not intended to become a universal charter for regulating all new forms of value.

Contracts, Freedom, and Responsibility

Let me conclude with a historical reflection from Commissioner Peirce's speech in May this year. She evoked the spirit of an American patriot who risked great personal danger, even death, to defend the principle that free people should not be subject to arbitrary decrees.

Fortunately, our work does not require such sacrifice, but the principle is the same. In a free society, the rules that govern economic life should be knowable, reasonable, and properly constrained. When we extend securities law beyond its proper scope, when we presume every innovation is guilty, we stray from this core principle. When we recognize the boundaries of our own authority, when we acknowledge that investment contracts may terminate and networks can operate independently on their own merits, we are upholding this principle.

The SEC's reasonable approach to crypto regulation will not itself determine the fate of the market or any particular project—that will be decided by the market. But it will help ensure that the United States remains a place where people can experiment, learn, fail, and succeed under firm and fair rules.

This is the meaning of Project Crypto, and it is the goal the SEC should pursue. As Chairman, I make this commitment to you today: We will not let fear of the future trap us in the past; we will not forget that behind every token-related debate are real people—entrepreneurs striving to build solutions, workers investing for the future, and Americans working to share in the nation's prosperity. The SEC's role is to serve these three groups.

Thank you all, and I look forward to continuing the conversation with you in the coming months.