Stablecoins, meme coins and other kinds of digital assets don’t count as securities under new guidance from the U.S. Securities and Exchange Commission (SEC), which also spells out when crypto assets may be captured by securities law for functioning as “investment contracts” and when they can exit that status.
In a landmark policy interpretation, the SEC declared that tokenized securities are the only crypto assets that are explicitly considered securities under federal law. Other kinds of crypto assets — including stablecoins, digital commodities (speculative crypto assets), digital collectibles and tools — aren’t considered securities, it said.
At the same time, the regulator sought to clarify when crypto assets that aren’t themselves considered securities may stray into the legal definition of a security by virtue of operating as “investment contracts” under the so-called “Howey test” — a Supreme Court decision from 1946, which defined when securities law applies to investments that are based on the efforts of others to generate profits.
To that end, the SEC provided guidance on the kinds of promises to investors that are needed to form an investment contract, including the source of claims that are made to investors, the way they’re communicated and the level of detail that must be provided.
The policy also sets out how an asset may stop being subject to securities law under that same set of considerations — either because the issuer fulfilled its promises, or failed to fulfill its promises — terminating the contract.
Additionally, the guidance declares that activities such as “protocol mining, staking, and wrapping” do not count as securities and that “airdrops” aren’t investment contracts.
“This is a major step in the commission’s efforts to provide greater clarity regarding the commission’s treatment of crypto assets, and complements Congressional endeavors to codify a comprehensive market structure framework into statute,” the regulator said in a statement accompanying the interpretation.
“After more than a decade of uncertainty, this interpretation will provide market participants with a clear understanding of how the commission treats crypto assets under federal securities laws,” said SEC chairman, Paul Atkins, in a release.
James Moloney, director of the SEC’s division of corporation finance, said that the new guidance “represents the last chapter in the tale of Howey” and that the framework for assessing when an investment contract terminates that “can easily apply to … other non-crypto assets.”
The U.S. Commodity Futures Trading Commission (CFTC) joined the SEC in the guidance, and said that its staff will administer commodities law in line with the SEC’s interpretation, including how digital commodities — crypto assets that derive their value from supply and demand — don’t meet the definition of securities but may be considered commodities.
The joint agency action “reflects a shared commitment to developing workable, harmonized regulations for the new frontier of finance,” said CFTC chairman, Michael Selig, in a statement.