On March 17, 2026, the SEC and CFTC jointly issued an interpretive release[i] (the “Interpretation”) clarifying the securities-law treatment of certain crypto assets and blockchain activities, including mining, staking, wrapping, and airdrops. The Interpretation represents the most comprehensive federal articulation of crypto asset jurisdiction to date. It follows a joint Memorandum of Understanding between the agencies that memorialized its intent to provide regulatory clarity and certainty built on technology-neutral regulations and frameworks that account for emerging technologies.[ii]
Key Takeaways
- The Interpretation expressly supersedes the Commission staff’s Framework for “Investment Contract” Analysis of Digital Assets issued in April 2019.
- The Interpretation establishes a five-category taxonomy for crypto assets: Digital Commodities (not securities), Digital Collectibles (not securities), Digital Tools (not securities), Stablecoins (not securities), and Digital Securities (securities).
- The Interpretation identifies 18 cryptocurrencies as examples of digital commodities rather than securities.
- The Interpretation provides a framework for when a non-security crypto asset sold subject to an investment contract (e.g., SAFT or Token Warrant) “separates” from that contract, ending the securities-law overlay on secondary-market transactions.
- Certain Protocol Mining and Protocol Staking activities are categorically excluded from securities regulation.
- Redeemable Wrapped Tokens are not securities, and wrapping a digital commodity does not convert it into a security.
- Airdrops are not securities offerings if the recipient does not provide money, goods, or services to the issuer in consideration of the airdropped tokens.
Overview
For more than a decade, the digital asset industry has operated under a fragmented and largely enforcement-driven regulatory framework. The foundational question, whether a given crypto asset is a security subject to SEC jurisdiction, a commodity subject to CFTC jurisdiction, or something else entirely, has been answered primarily through litigation rather than rulemaking.
The agencies’ joint interpretive release under Project Crypto attempts to change that. Rather than proposing new rules requiring notice and comment, the release is styled as an authoritative interpretation of existing law, specifically, the investment contract analysis under SEC v. W.J. Howey Co., 328 U.S. 293 (1946), and the commodity definitions under the Commodity Exchange Act. This approach allows the agencies to provide immediate guidance without the delays of the rulemaking process. However, it also means the interpretation does not carry the force of a final rule.
Definitions
The Interpretation introduces and relies on several defined terms that are central to its analytical framework. Understanding these definitions is essential to applying the Interpretation correctly, as many carry meanings that differ from their colloquial use in the crypto industry or their treatment in prior SEC guidance. For a comprehensive glossary of the defined terms used in the Interpretation, see our companion article, Glossary of Defined Terms Under the Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets.
Classifying Crypto Assets: Five-Category Taxonomy
The Interpretation organizes crypto assets into five mutually exclusive categories based on their economic function and the circumstances of issuance and distribution. This section provides an at-a-glance look at each category, followed by an in-depth description.
| Category | Description | Securities Status |
| Digital Commodities | Crypto assets that function as a medium of exchange, store of value, or unit of account with no centralized issuer; paradigmatically, Bitcoin and Ethereum | Not a security |
| Digital Collectibles | Crypto assets designed to be collected and/or used and may represent or convey rights to artwork, music, videos, trading cards, in-game items, or various digital representations; no intrinsic economic rights or legal rights to a business enterprise; | Not a security (but can yield different result if fractionalized) |
| Digital Tools | Crypto assets that perform practical functions (e.g. membership ticket, credential, title instrument, or identity badge); often non-transferable; no intrinsic economic rights | Not a security |
| Stablecoins | Crypto assets designed to maintain a stable value relative to a reference asset (fiat currency, commodity), including payment stablecoins under the GENIUS Act framework | Not a security |
| Digital Securities | Crypto assets (aka “tokenized” securities) that represent equity, debt, revenue-sharing rights, or that are sold in transactions constituting investment contracts under Howey; generally fall into two categories (1) securities tokenized by or on behalf of issuers and (2) securities tokenized by unaffiliated third parties | Security |
The taxonomy is intended to be functional rather than formalistic. The agencies emphasize that the same token may fall into different categories depending on how it is sold and to whom it is sold. For this reason, it is critical to analyze the features of the crypto asset as well as the facts and circumstances around its offer and sale.
1. Digital Commodity
A “Digital Commodity” is defined as a “Crypto Asset” with the following features
- Native Asset of a Crypto System. The asset is the native crypto asset of a “crypto system,” defined as a “crypto network,” a “crypto application,” or both together.
- Intrinsically Linked to a Functional Crypto System. This is the gateway prong: without a functional, non-centrally-controlled crypto system, there is no digital commodity.
The crypto asset must be intrinsically linked to a functional crypto system, meaning the system’s native crypto asset can actually be used on the system in accordance with its programmatic utility — and that system must not have a central party overseeing participation or distributing rewards to users. Functionality is assessed by reference to how the issuer defined the term in its own representations, not by a general market conception of what the system could or should do.
The crypto asset must also be integral to the operation of that functional system, meaning it is necessary to participate in or use aspects of the system. Its programmed purpose must encompass at least one of the following: (i) facilitating and incentivizing the validation, ordering, and confirmation of transactions; (ii) maintaining the functioning or security of the system; or (iii) fostering network effects. This requirement distinguishes native assets from tokens that exist only on a network and are not essential to it. In practice, integrality is typically demonstrated through technical rights, such as staking and gas fees, or governance rights, such as voting on software upgrades and treasury expenditures.
- Absence of Securities Characteristics. The asset lacks intrinsic economic properties or rights that characterize business-enterprise securities: it does not generate a passive yield, and it does not convey rights to future income, profits, or assets of a business enterprise, other entity, promisor, or obligor. The asset’s value derives from the programmatic operation of the functional crypto system and supply and demand dynamics, not from a purchaser’s reasonable expectation of profits from the essential managerial efforts of others.
The Interpretation identifies the following eighteen cryptocurrencies as digital commodities: Aptos (APT), Avalanche (AVAX), Bitcoin (BTC), Bitcoin Cash (BCH), Cardano (ADA), Chainlink (LINK), Dogecoin (DOGE), Ether (ETH), Hedera (HBAR), Litecoin (LTC), Polkadot (DOT), Shiba Inu (SHIB), Solana (SOL), Stellar (XLM), Tezos (XTZ), and XRP — plus Algorand (ALGO) and LBRY Credits (LBC), which are identified in a footnote as additional examples that do not underlie CFTC-regulated futures contracts but satisfy the digital commodity definition nonetheless.
2. Digital Collectible.
A digital collectible is a crypto asset designed to be collected and used. It may represent or convey rights to artwork, music, videos, trading cards, in-game items, or digital representations of internet memes, characters, current events, or trends. Like physical collectibles, digital collectibles do not grant holders any legal rights or interests in a business enterprise or other entity, or in any promisor or obligor associated with the creator. However, they may provide a limited license or other intellectual property rights, such as the right to display and commercialize the acquired artwork. A digital collectible’s value is not based on an expectation of profits from any essential managerial efforts of its creator following creation, but rather on supply and demand, which in many cases depends on the subject matter, popularity, or scarcity of the collectible, much like a piece of physical art whose value rises or falls with market forces. Notably, while a digital collectible itself is not a security, the offer and sale of a fractionalized digital collectible, one that enables individuals to acquire a fractional ownership interest in a single collectible, could constitute the offer or sale of a security because it may involve essential managerial efforts from which a purchaser would reasonably expect to derive profits.
3. Digital Tool
A digital tool is a crypto asset that performs a practical function, such as a membership, ticket, credential, title instrument, or identity badge, and its value is derived from that practical functionality rather than any expectation of investment return. Digital tools are commonly issued for use in connection with crypto systems. They are often non-transferable or “soul-bound,” meaning they are designed for permanent association with a specific digital identity to represent aspects of an individual’s or entity’s identity that are not typically transferable, such as academic degrees, professional certifications, or memberships. A digital tool does not have intrinsic economic properties or rights, such as generating a passive yield or conveying rights to future income, profits, or assets of a business enterprise. Persons acquire digital tools for their functional utility and have no rights or interest in any business enterprise associated with the developer, much as a museum membership does not entitle its holder to profit from the museum’s operations.
4. Stablecoin
A stablecoin is a crypto asset designed to maintain a stable value relative to a reference asset, such as the U.S. dollar, and the category encompasses a broad range of instruments that may or may not be securities depending on their characteristics. In July 2025, Congress enacted the GENIUS Act, which creates a comprehensive regulatory framework for “payment stablecoins” and excludes from the definition of “security” any payment stablecoin issued by a permitted payment stablecoin issuer — a category limited to U.S.-formed entities that are subsidiaries of insured depository institutions, Federal qualified issuers, or State qualified issuers. A permitted payment stablecoin issuer is prohibited under the GENIUS Act from paying any form of interest or yield to stablecoin holders solely in connection with the holding, use, or retention of the stablecoin. Stablecoins other than payment stablecoins issued by a permitted payment stablecoin issuer may still meet the definition of security depending on the facts and circumstances, and the Commission interprets that the offer and sale of “Covered Stablecoins” as described in the Division of Corporation Finance’s April 2025 staff statement does not involve the offer and sale of securities.
5. Digital Security
A digital security, commonly known as a “tokenized” security, is a financial instrument enumerated in the definition of “security” that is formatted as or represented by a crypto asset, with the record of ownership maintained in whole or in part on or through one or more crypto networks. Tokenized securities generally fall into two categories: those tokenized by or on behalf of the issuers of the underlying securities, and those tokenized by unaffiliated third parties, which may involve the third party issuing a separate security that derives its value from or is otherwise linked to the subject security. Because a security is a security regardless of whether it is issued off-chain or on-chain, all instruments with the economic characteristics of a security remain securities regardless of format or label. A digital security does not fall outside the definition of “security” merely because it provides non-financial benefits to holders similar to those of a digital commodity, digital collectible, or digital tool.
Crypto Assets Subject to an Investment Contract
1. How Crypto Assets Become Subject to an Investment Contract
The Interpretation draws a bright line: crypto assets sold subject to an investment contract are not themselves securities, just as the orange groves in Howey would not be considered securities.[iii]But what analytical framework applies when a crypto token is sold “subject to” an investment contract?
It is common practice in the crypto industry for an issuer to sell tokens pursuant to a written instrument (e.g., a SAFT or Token Warrant). If the written instrument satisfies all four prongs of the Howey test, it will be considered an investment contract. The Interpretation explains that, absent such an agreement, a crypto asset may still be “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 person would reasonably expect to derive profits.[iv]
The application of the third and fourth prongs of Howey, whether a purchaser reasonably expects to profit from the essential managerial efforts of a crypto asset issuer, has been the subject of significant debate for several years. The Interpretation clarifies the relevant facts and circumstances, taken as a whole, that must be weighed. In this section, we map the Interpretation’s treatment of Howey’s third prong against how the SEC has historically prosecuted evidence to prove it.
Source. The SEC routinely attributed statements to the issuer’s ecosystem, developers, promoters, affiliated entities, and even community members, without rigorously tying each statement to a specific authorized communication. The new standard’s explicit limitation (no third-party promises absent issuer coordination) would require the SEC to establish that each statement was made “by or on behalf of” the issuer. In cases like Binance, where the SEC relied on community promotion of BNB and ecosystem development, the attribution question becomes a real evidentiary challenge.
The Interpretation explains it is reasonable for a purchaser to rely on explicit representations or promises conveyed to it by or on behalf of the issuer. It would not be reasonable for a purchaser to rely on third-party promises absent coordination with the issuer.
Timing. The SEC has used statements made after a purchaser’s secondary-market purchase to establish the purchaser’s expectation of profits. This is the theory the Coinbase court accepted: issuers continued to make representations long after the tokens were made available for trading on the secondary market, and an objective investor in both the primary and secondary markets would perceive these statements as promising profits derived from the efforts of others.
The Interpretation clarifies that promises or representations must be conveyed prior to or contemporaneously with the issuer’s offer or sale to the purchaser. Post-sale marketing statements would no longer support the prong for earlier purchasers.
Manner. In prior enforcement actions, the SEC relied on diffuse, multi-platform statements across unofficial channels, third-party publications, and various speakers. Interpretation channels the analysis toward statements in written agreements, established official communication channels, direct private communications, regulatory filings, and clearly attributed documents (such as whitepapers). While statements outside these channels “may still” qualify, the analysis focuses on additional factors, such as widespread dissemination and established communication practices, a higher bar than the old standard required.
Substance. The SEC routinely pleaded that general promotional statements about platform development, ecosystem growth, deflationary tokenomics, and team expertise were sufficient to create an expectation of profits. The Interpretation demands more, emphasizing the “reasonableness” of such expectation, such as explicit, unambiguous representations detailing the issuer’s efforts to generate profits. Most of the tweets, social posts, and promotional materials the SEC actually quoted in complaints from 2020 to 2024 are vague by this measure. They convey optimism and enthusiasm about the project’s future rather than specific commitments about how purchaser value will be created.
According to the Interpretation, vague statements do not fit the bill. Explicit and unambiguous representations or promises detailing the issuer’s efforts to produce profits will create a reasonable expectation of profits in the purchaser of a crypto asset. For example, an issuer may create a reasonable expectation of profits in a purchaser if that issuer promises to develop functionality of a crypto asset, provides key business information (a business plan w/ milestones, a timeline, information about personnel, sources of funding, etc.), and explains how a purchaser will profit from such efforts.
2. Separation of a Crypto Asset from an Investment Contract
A crypto asset does not remain subject to an investment contract in perpetuity. Only if a purchaser continues to reasonably expect to profit from the essential managerial efforts of the issuer, a crypto asset will no longer be subject to an investment contract where the following “indicia of separation” are present: (1) the issuer fulfills its representations or promises; or (2) the issuer fails to satisfy its representations or promises.[v]
a. Fulfillment of Issuer’s Reps or Promise
If an issuer of a crypto asset sold subject to an investment contract fulfills its representations or promises to perform essential managerial efforts, then the crypto asset is no longer subject to an investment contract.[vi] For example, the issuer may promise to develop certain functionalities or features, achieve certain milestones on a roadmap, or open-source related computer code. The issuer’s affirmative statements that it fulfilled its promises will be crucial.[vii] Importantly, the issuer may still provide non-managerial efforts to a crypto system or software project without jeopardizing the status of the crypto asset under federal securities laws.
The Interpretation endorses a common practice in the crypto industry. Often, an onshore development company will raise capital by selling rights to future tokens, hire developers, create the software code necessary for the crypto system, and cede control of the project to an unaffiliated collection of ecosystem proponents. The founders of the development company may or may not stay involved with the project to varying degrees. In such a scenario, the crypto asset sold subject to a SAFT or Token Warrant by the development company would no longer be subject to that investment contract if the development company fulfilled its stated promises.
Most crypto asset issuers already maintain communication guidelines of some kind. Issuers would do well to revisit and sharpen those guidelines, because under the Interpretation, the issuer’s own representations become the measuring stick. How an issuer defines its goals and promises will determine whether those commitments were satisfied and whether a purchaser’s expectation of profits was reasonable in the first place. An issuer that commits to “decentralizing” its project, for example, will be judged against its own definition of decentralization.
b. Failure of Issuer’s Reps or Promises
A purchaser would not reasonably expect profits from the essential managerial efforts of a crypto asset issuer where the issuer has publicly announced that it will no longer undertake such efforts or has clearly abandoned development efforts.[viii] Issuers should bear in mind, however, that ceasing development activity may not eliminate legal exposure. Liability could still attach under other legal theories, such as contract or fraud claims, for failure to deliver on prior commitments, even where the federal securities laws do not apply.
Status of Crypto Asset Activities
1. Protocol Mining
Proof-of-work mining, the process by which miners validate transactions and add blocks to a blockchain in exchange for newly minted tokens, is not a securities offering or transaction. The Interpretation confirms that “Self Mining” and “Mining Pools” do not involve the purchase of investment contracts, even where the value of the received tokens may appreciate over time. The key distinction is that miners contribute their own labor (computational resources), not capital in anticipation of issuer-driven returns.
The SEC’s Division of Corporation Finance previously issued a statement addressing Protocol Mining.[ix]The Interpretation supersedes that statement and clarifies that staff statements of this kind are not rules, regulations, guidance, or statements of the Commission itself, and carry no legal force or effect.
2. Protocol Staking
Protocol Staking Activities include self-staking, self-custodial staking with a third party, custodial staking, and liquid staking, each of which does not involve the offer and sale of a security. Where validators lock tokens to participate in consensus and receive rewards, they are actively participating in network operations. The Interpretation draws a distinction between active validators (not a security) and staking-as-a-service arrangements in which a third party pools customers’ assets, exercises discretion, and distributes returns to passive participants. The latter may constitute an investment contract requiring closer analysis.
The Interpretation similarly supersedes the Division of Corporation Finance’s previously issued statement addressing Protocol Staking.[x]
3. Wrapping
Wrapping is the process of locking a token on one blockchain and minting a representative token on another. Wrapping does not alter the underlying asset’s status as a security. If the underlying token is not a security, the wrapped version is not a security either. The Interpretation rejects the argument that the wrapping process itself creates an investment contract, because depositing a crypto asset with a custodian or a cross-chain bridge and receiving an equivalent amount of a “Redeemable Wrapped Token” is a transaction that does not bear the economic characteristics of a security.
4. Airdrops
Airdrops of consumptive tokens to existing network participants or wallet holders are not securities offerings where: (i) the token being distributed is not a Digital Security; (ii) the distribution is not conditioned on payment or investment; and (iii) the primary purpose is to distribute utility or reward existing users rather than to raise capital. Promotional airdrops structured as capital-raising events may still implicate the securities laws.
The Interpretation provides three examples in which an airdrop would fall outside the scope of the federal securities laws: (i) tokens distributed to holders of another specified crypto asset, which may itself be a security and may have been issued by the same issuer or a different one, where no prior announcement of the airdrop was made; (ii) tokens distributed to persons who assist in testing the network, again without prior announcement; and (iii) tokens distributed to users of a related software application, also without prior announcement.
Conclusions and Key Takeaways
The Interpretation represents the most significant regulatory development for the digital asset industry in years. Yet, its practical impact on day-to-day market activity may be more modest than the headlines suggest. In large part, the Interpretation reflects the law catching up to how the industry has already been operating — most sophisticated issuers have long structured token offerings around whitepapers, SAFTs, and documented development roadmaps, and most Protocol Mining and Staking activity has proceeded on the assumption that it falls outside the securities laws. What the Interpretation adds is not a new set of obligations but a durable, Commission-level imprimatur on practices that were already widely followed. That said, the Interpretation is not without consequence. Issuers with legacy token structures, informal communication practices, or undocumented development commitments should use this moment to audit their posture against the new framework — not because the rules have fundamentally changed, but because the Commission has now clearly articulated the standard against which it will measure compliance in the future.
This alert is for informational purposes only and does not constitute legal advice. The analysis reflects the agencies’ interpretive release and is subject to further regulatory, judicial, and legislative development. Clients should consult counsel regarding the application of these principles to specific facts and circumstances.
Bull Blockchain Law LLP is a boutique law firm dedicated to advising clients at the intersection of digital assets, fintech, and financial regulation. If you have questions about how these developments may impact your business, please contact any member of our team directly or schedule a consultation.
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[i] Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Securities Act Release No. 33-11412, Exchange Act Release No. 34-105020 (Mar. 17, 2026).
[ii] Memorandum of Understanding Between the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission Regarding Coordination on Digital Asset Regulation (2026), https://www.sec.gov/files/mou-sec-cftc-2026.pdf.
[iii] Interpretation at 27 (“[T]he fact that a non-security crypto asset is subject to an investment contract does not transform the non-security crypto asset itself into a security.”).
[iv] Interpretation at 24.
[v] Interpretation at 29.
[vi] Id.
[vii] Interpretation at 30.
[viii] Interpretation at 31.
[ix] See U.S. Securities and Exchange Commission, Division of Corporation Finance, Staff Statement on Certain Proof-of-Work Mining Activities (Mar. 20, 2025), available at https://www.sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025.
[x] See U.S. Securities and Exchange Commission, Division of Corporation Finance, Staff Statement on Certain Protocol Staking Activities (May 29, 2025), available at https://www.sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925, and Staff Statement on Certain Liquid Staking Activities (Aug. 5, 2025), available at https://www.sec.gov/newsroom/speeches-statements/corpfin-certain-liquid-staking-activities-080525.