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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 231 and 241

[Release Nos. 33-11412; 34-105020; File No. S7-2026-09]

RIN 3235-AN56

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

RIN 3038-AF67

Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain

Transactions Involving Crypto Assets

AGENCY: Securities and Exchange Commission; Commodity Futures Trading Commission

ACTION: Final rule; interpretation; guidance

SUMMARY: The Securities and Exchange Commission (“Commission” or “SEC”) issues

herein an interpretation regarding the application of the Federal securities laws to certain types of

crypto assets and certain transactions involving crypto assets. The references in this release to

“we” and “our” are to the Commission. The Commodity Futures Trading Commission (“CFTC”)

provides herein guidance relating to that interpretation.

DATES: Effective Date: March 23, 2026.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments:

•

Use the Commission’s internet comment form (https://www.sec.gov/comments/s72026-09/application-federal-securities-laws-certain-types-crypto-assets-certaintransactions-involving); or

•

Send an email to rule-comments@sec.gov. Please include File Number S7-2026-09

on the subject line.

Paper Comments:

•

Send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-2026-09. This file number should be

included on the subject line if email is used. To help the Commission process and review your

comments more efficiently, please use only one method of submission. The Commission will

post all comments on the Commission’s website (https://www.sec.gov/comments/s7-202609/application-federal-securities-laws-certain-types-crypto-assets-certain-transactionsinvolving). Do not include personally identifiable information in submissions; you should submit

only information that you wish to make available publicly. The Commission may redact in part

or withhold entirely from publication submitted material that is obscene or subject to copyright

protection.

FOR FURTHER INFORMATION CONTACT: SEC: Andrew Schoeffler, Office of Chief

Counsel, at (202) 551-3500, Division of Corporation Finance, Securities and Exchange

Commission, 100 F Street NE, Washington, DC 20549; CFTC: Mark Fajfar, Senior Assistant

General Counsel, Office of the General Counsel, at (202) 418-6636, Commodity Futures Trading

Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

INTRODUCTION ............................................................................................................... 4

II.

DEFINITION OF “SECURITY”....................................................................................... 9

III. CLASSIFICATION OF CRYPTO ASSETS ................................................................... 13

IV.

Digital Commodities ................................................................................................ 14

Digital Collectibles ................................................................................................... 16

Digital Tools .............................................................................................................. 20

Stablecoins ................................................................................................................ 21

Digital Securities ...................................................................................................... 23

CRYPTO ASSETS THAT ARE SUBJECT TO AN INVESTMENT CONTRACT.... 24

How Crypto Assets Become Subject to an Investment Contract ........................ 24

Separation of a Non-Security Crypto Asset from the Issuer’s Representations or

Promises .................................................................................................................... 28

Fulfillment of the Issuer’s Representations or Promises .......................... 29

Failure to Satisfy Issuer’s Representations or Promises .......................... 31

Application of the Interpretation ............................................................... 33

FEDERAL SECURITIES LAWS STATUS OF THE CRYPTO ASSET ACTIVITIES

KNOWN AS “PROTOCOL MINING” AND “PROTOCOL STAKING” .................. 34

VI.

Protocol Mining........................................................................................................ 35

Protocol Mining Activities Generally ......................................................... 35

Covered Protocol Mining Activities ........................................................... 37

Interpretation Regarding Protocol Mining Activities .............................. 38

Protocol Staking ....................................................................................................... 40

Protocol Staking Activities Generally ........................................................ 40

Covered Protocol Staking Activities ........................................................... 46

Interpretation Regarding Protocol Staking Activities .............................. 47

Interpretation Regarding Staking Receipt Tokens ................................... 52

FEDERAL SECURITIES LAWS STATUS OF THE CRYPTO ASSET ACTIVITY

KNOWN AS “WRAPPING” ............................................................................................ 54

VII. APPLICATION OF THE HOWEY TEST TO CERTAIN CRYPTO ASSET

DISSEMINATIONS KNOWN AS “AIRDROPS” ......................................................... 58

Airdrops Generally .................................................................................................. 58

Covered Airdrops ..................................................................................................... 59

Interpretation Regarding Airdrops ........................................................................ 60

VIII. OTHER MATTERS .......................................................................................................... 63

IX.

COMMISSION ECONOMIC CONSIDERATIONS ..................................................... 63

INTRODUCTION

The Commission has engaged with crypto assets 1 for more than a decade. 2 In 2017, the

Commission issued a report pursuant to section 21(a) of the Securities Exchange Act of 1934

(the “Exchange Act”) 3 regarding offers and sales of crypto assets by an unincorporated

organization named “The DAO.” 4 The Commission, in The DAO Report, determined, among

other things, that crypto assets issued by The DAO were offered and sold as investment contracts

and, therefore, securities under section 2(a)(1) of the Securities Act of 1933 (the “Securities

Act”) 5 and section 3(a)(10) of the Exchange Act. 6 In making this determination, the Commission

applied the “Howey test,” which the U.S. Supreme Court (the “Supreme Court”) has used to

determine whether a contract, transaction, or scheme is an investment contract and therefore a

security. 7 In the years following publication of The DAO Report, the Commission applied the

For purposes of this release: a “crypto asset” is any digital representation of value that is recorded on a

cryptographically secured distributed ledger; a “crypto network” is a blockchain or similar distributed ledger

technology network; and a “crypto application” is a software application running on a crypto network. We refer

to crypto networks and crypto applications together in this release as “crypto systems.” Further, for purposes of

this release, “onchain” refers to transactions or data that are processed and recorded directly on a crypto

network and “offchain” refers to transactions or data that are processed and recorded outside of a crypto

network. The foregoing definition of “crypto asset” is identical to the definition of “Digital Asset” in section

2(6) of the Guiding and Establishing National Innovation for U.S. Stablecoins Act, Pub. L. No. 119-27, 139

Stat. 419 (2025) (“GENIUS Act”).

For example, the first registration statement for the offer and sale of a crypto asset exchange-traded product was

filed with the Commission in 2013. See Form S-1 Registration Statement filed with the Commission on July 1,

2013, available at https://www.sec.gov/Archives/edgar/data/1579346/000119312513279830/d562329ds1.htm.

15 U.S.C. 78a et seq.

See Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO,

Release No. 34-81207 (July 25, 2017) (“The DAO Report”).

15 U.S.C. 77a et seq.

See The DAO Report at 11-15.

See SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (“Howey”). The Howey test defines an investment contract as

a contract, transaction, or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with an

expectation of profits derived from the efforts of others. Courts have concluded that the “Howey test has three

elements,” including “a common enterprise.” SEC v. Barry, 146 F.4th 1242, 1251 (9th Cir. 2025); accord SEC v.

Howey test, mostly in the context of enforcement actions, to determine whether crypto assets

were offered and sold as investment contracts and therefore as securities. Some Commissioners

and other commentators expressed concerns about the Commission’s approach to crypto assets

during this period. Some described that approach as “regulation by enforcement,” stating that the

Commission pursued enforcement actions against crypto asset issuers for alleged violations of

the Federal securities laws rather than developing a tailored regulatory framework that

accommodates crypto asset innovation and entrepreneurship. 8

Applying the Howey test to crypto assets and transactions involving crypto assets can be

challenging because of the varying degrees of control that persons or groups may have over

crypto systems, the diversity of the types of crypto assets with varying characteristics, uses, and

functionality, and the evolving nature of crypto assets and crypto systems. These unique

attributes of crypto assets have prompted divergent views among market participants, financial

regulators, and the courts over the application of the Howey test to crypto assets and transactions

involving crypto assets, particularly with respect to secondary market transactions involving

crypto assets. Accordingly, market participants have requested guidance from the Commission

Scoville, 913 F.3d 1204, 1220 (10th Cir. 2019) (the Howey test has been broken down into “three requirements,”

including a “common enterprise”). To the extent the Commission’s opinion in In re Barkate, Release No. 3449542, 2004 WL 762434, at *3 n.13 (Apr. 8, 2004), or other such prior statements by the Commission or its

staff indicate that the Commission does not view commonality as a requirement for an “investment contract”

under Howey, the Commission concludes and clarifies that, based on courts’ post-Barkate decisions, the

common enterprise element must be satisfied.

See, e.g., Commissioner Hester M. Peirce, Outdated: Remarks before the Digital Assets at Duke Conference

(Jan. 20, 2023), available at https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-dukeconference-012023#_ftn35; Commissioner Mark T. Uyeda, Remarks at the “SEC Speaks” Conference 2022,

available at https://www.sec.gov/newsroom/speeches-statements/uyeda-speech-sec-speaks-090922;

Commissioner Mark T. Uyeda, Remarks at the “SEC Speaks” Conference 2025, available at

https://www.sec.gov/newsroom/speeches-statements/uyeda-remarks-sec-speaks-051925.

regarding the circumstances under which the Commission will characterize crypto assets as

securities and transactions involving crypto assets as securities transactions. 9

On January 21, 2025, Acting Chairman Mark T. Uyeda established the Crypto Task Force

to help provide greater clarity on the application of the Federal securities laws to the crypto asset

markets. 10 The Crypto Task Force’s focus is to support, among other things, the Commission’s

efforts to draw clear regulatory lines, appropriately distinguish securities from non-securities,

craft tailored disclosure frameworks, provide realistic paths to registration for crypto asset

offerings and intermediaries subject to the Federal securities laws, and ensure that investors have

the information necessary to make informed investment decisions. 11 To this end, the Crypto Task

Force has hosted a series of roundtables, including a March 21, 2025 roundtable on security

status titled, “How We Got Here and How We Get Out – Defining Security Status.” 12 The Crypto

Task Force also has requested and received written input from, 13 and held meetings with,

members of the public. 14 To date, the Crypto Task Force has received over 300 written

submissions from issuers, investors (both individual and institutional), law firms and legal

See, e.g., Coinbase, Petition for Rulemaking – Digital Asset Securities Regulation (July 21, 2022), available at

https://www.sec.gov/rules/petitions/2022/petn4-789.pdf; Letter from Robinhood Markets, Inc. (Mar. 13, 2025),

available at https://www.sec.gov/files/ctf-input-robinhood-2025-03-13.pdf; Letter from Andreessen Horowitz

(Mar. 13, 2025), available at https://api.a16zcrypto.com/wp-content/uploads/2025/03/a16z-Crypto-SEC-RFIQuestions-1-through-6-March-13-2025.pdf; Letter from Coinbase Global, Inc. (Mar. 19, 2025), available at

https://www.sec.gov/files/ctf-input-grewal-2025-3-19.pdf; Letter from SIFMA and SIFMA AMG (May 9,

2025), available at https://www.sifma.org/wp-content/uploads/2025/05/SIFMA-SEC-Crypto-RFI-InitialResponse-May-2025.pdf.

See U.S. Securities and Exchange Commission, Crypto Task Force, available at

https://www.sec.gov/about/crypto-task-force.

Id.

See U.S. Securities and Exchange Commission, Crypto Task Force Roundtables, available at

https://www.sec.gov/about/crypto-task-force/crypto-task-force-roundtables.

See U.S. Securities and Exchange Commission, Crypto Task Force Written Input, available at

https://www.sec.gov/about/crypto-task-force/crypto-task-force-written-input.

See U.S. Securities and Exchange Commission, Crypto Task Force Meetings, available at

https://www.sec.gov/about/crypto-task-force/crypto-task-force-meetings.

professionals, audit and accounting professionals and firms, academics, professional and investor

associations and organizations, investment companies and advisors, market intermediaries,

service providers, network foundations, foreign entities, other crypto asset market participants,

and other members of the public. 15

In July 2025, the President’s Working Group on Digital Asset Markets released a report

titled, “Strengthening American Leadership in Digital Financial Technology” that, among other

things, addresses the need for a taxonomy for crypto assets and sets forth a number of

recommended regulatory reforms relating to the crypto asset markets. 16 In particular, the report

recommended that the “SEC and CFTC should use their existing authorities to provide fulsome

regulatory clarity that best keeps blockchain-based innovation within the United States.” 17 In

connection with the release of the report, Chairman Paul S. Atkins launched “Project Crypto,” a

Commission-wide initiative to modernize rules and regulations under the Federal securities laws

in accordance with the President’s Working Group’s recommendations to enable America’s

financial markets to move onchain. 18 Among other things, Chairman Atkins directed the staff to

“work to develop clear guidelines that market participants can use to determine whether a crypto

asset is a security or subject to an investment contract.” 19 On January 29, 2026, Chairman Atkins

and CFTC Chairman Michael S. Selig announced that Project Crypto—previously an SEC-led

See supra note 13.

See Strengthening American Leadership in Digital Financial Technology (July 30, 2025) (“PWG Report”),

available at https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf.

Id. at 54.

See Chairman Paul S. Atkins, American Leadership in the Digital Finance Revolution (July 31, 2025), available

at https://www.sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125.

Id.

initiative—will proceed as a joint effort between the SEC and the CFTC to harmonize federal

oversight of crypto asset markets. 20

In light of the concerns raised about the Commission’s approach to crypto assets before

2025, the regulatory developments beginning in 2025, and the public input provided to the

Crypto Task Force, the Commission has determined to issue herein an interpretation of the

definition of “security” as applied to crypto assets and transactions involving crypto assets as

part of its efforts to provide greater clarity regarding the Commission’s treatment of crypto assets

under the Federal securities laws. We first discuss the definition of “security” under the Federal

securities laws, including the term “investment contract.” We then classify crypto assets into

categories based on their characteristics, uses, and functions, and analyze each category under

the definition of “security.” We also address how a “non-security crypto asset”—which is a

crypto asset that itself is not a security—may become subject to, and how it may cease to be

subject to, an investment contract. Further, we discuss the Federal securities laws status of the

crypto asset activities known as “protocol mining,” “protocol staking,” and “wrapping.” Finally,

we discuss the application of the Howey test to certain crypto asset disseminations known as

“airdrops.”

The interpretation in this release does not supersede or replace the Howey test, which is

binding legal precedent. Rather, the interpretation conveys the Commission’s views, informed by

the extensive feedback the Commission and its staff have received to date on these topics

(including from the Crypto Task Force’s roundtables, written input, and meetings), regarding

See Chairman Paul S. Atkins, Opening Remarks at Joint SEC-CFTC Harmonization Event – Project Crypto

(Jan. 29, 2026), available at https://www.sec.gov/newsroom/speeches-statements/atkins-remarks-joint-sec-cftcharmonization-event-project-crypto-012926; Chairman Michael S. Selig, The Next Phase of Project Crypto:

Unleashing Innovation for the New Frontier of Finance (Jan. 29, 2026), available at

https://www.cftc.gov/PressRoom/SpeechesTestimony/opaselig1.

how certain aspects of the Howey test apply to crypto assets and transactions involving crypto

assets. 21 The Commission and its staff will administer the Federal securities laws consistent with

the interpretation, including with respect to enforcement actions. The interpretation is the

Commission’s first step toward developing a clearer regulatory framework for the treatment of

crypto assets under the Federal securities laws. 22

Further, the CFTC provides herein guidance that the CFTC and its staff will administer

the Commodity Exchange Act 23 consistent with the interpretation, 24 and that certain non-security

crypto assets could meet the definition of “commodity” under the Commodity Exchange Act. 25

The interpretation in this release is based on the Commission’s current understanding of

the crypto asset markets, including the typical transactional and structural features of these

markets and the typical characteristics, uses, and functions of crypto assets. To help inform the

Commission’s ongoing consideration of the topics addressed in this release, we are soliciting

public comment on the views set forth in the interpretation, including the descriptions of the

crypto assets and crypto asset transactions contained herein. Based on the feedback received, the

Commission may refine, revise, or expand upon the interpretation in order to provide further

clarity regarding the Commission’s treatment of crypto assets under the Federal securities laws.

II.

DEFINITION OF “SECURITY”

The interpretation supersedes the Commission staff’s Framework for “Investment Contract” Analysis of Digital

Assets (Apr. 3, 2019), available at https://www.sec.gov/corpfin/framework-investment-contract-analysis-digitalassets.

See, e.g., U.S. Securities and Exchange Commission, Spring 2025 Unified Agenda of Regulatory and

Deregulatory Actions, available at

https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&cur

rentPub=true&agencyCode=&showStage=active&agencyCd=3235.

7 U.S.C. 1 et seq.

Nothing in this release should be construed as altering the respective statutory authorities of the SEC or CFTC.

See infra note 48.

In delineating the scope of the Federal securities laws, Congress “enacted a broad

definition of ‘security,’ sufficient to encompass virtually any instrument that might be sold as an

investment.” 26 While the definition of “security” includes an enumerated list of “the commonly

known documents traded for speculation or investment,” including “stock,” “bond,” and “note,”

it also includes instruments “of a more variable character,” such as “investment contract,”

“certificate of interest or participation in a profit-sharing agreement,” and “any interest or

instrument commonly known as a security.” 27 In addition, the definition of “security” includes

any “receipt for, guarantee of, or warrant or right to subscribe to or purchase” any of the financial

instruments enumerated in the definition of “security.” 28

The Supreme Court has said that “[b]ecause securities transactions are economic in

character Congress intended the application of these statutes to turn on the economic realities

underlying a transaction, and not the name appended thereto.” 29 The Supreme Court has

reasoned that “in searching for the meaning and scope of the word ‘security’ . . ., form should be

disregarded for substance and the emphasis should be on economic reality.” 30 Nonetheless, the

definition of “security” is not boundless: “Congress, in enacting the securities laws, did not

intend to provide a broad federal remedy for all fraud.” 31 While the securities laws cover “those

instruments ordinarily and commonly considered to be securities in the commercial world,” not

every instrument is “the type of instrument that comes to mind when the term ‘security’ is used,”

SEC v. Edwards, 540 U.S. 389, 393 (2004). The definition of “security” is “essentially identical in meaning”

under section 2(a)(1) of the Securities Act (15 U.S.C. 77b(a)(1)) and section 3(a)(10) of the Exchange Act (15

U.S.C. 78c(a)(10)). Id. (citing Reves v. Ernst & Young, 494 U.S. 56, 61 n.1 (1990)).

Howey, 328 U.S. at 297.

15 U.S.C. 77b(a)(1).

United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 849 (1975).

Id.

Marine Bank v. Weaver, 455 U.S. 551, 556 (1982).

and not every instrument falls within “the ordinary concept of a security.” 32 Importantly, the

Federal securities laws generally do not apply to items that are purchased for use or

consumption, 33 whether they are physical or digital.

There is no universal test to determine whether an instrument is a security. 34 Instead, it

must be analyzed to determine if it constitutes one of the financial instruments enumerated in the

definition of “security.” The financial instruments enumerated in the definition of “security”

generally are not defined in statute or Commission rules, 35 but the Supreme Court and other

Federal courts have interpreted many of them based on economic reality. For example, the

Supreme Court has established tests for determining whether an instrument that is designated as

a “note” 36 or “stock” 37 is a security for purposes of the Federal securities laws.

The definition of “security” is not limited to “obvious and commonplace” instruments. 38

In cases involving a “[n]ovel, uncommon, or irregular device,” courts often evaluate whether the

instrument is an “investment contract,” a term that is not defined in statute or Commission

Id. at 559.

Forman, 421 U.S. at 852-53 (“[W]hen a purchaser is motivated by a desire to use or consume the item

purchased—‘to occupy the land or to develop it themselves,’ as the Howey court put it, ibid.—the securities

laws do not apply.” (quoting Howey, 328 U.S. at 300)).

Louis Loss (late), Joel Seligman & Troy Paredes, Securities Regulation 3.A.1 (6th and 7th eds., 2025 Cum.

Supp. 2018-2023) (“Each type of financial instrument included in the statutory definition of security is

susceptible to a separate analysis, employing separate analytical concepts. There is no universal or generic test

of the term.”).

Certain financial instruments enumerated in the definition of “security” are defined in statute and Commission

rules and regulations, such as “security future” and “security-based swap.” See, e.g., 15 U.S.C. 78c(a)(55) and

(68).

See Reves, 494 U.S. at 60–61 (holding that all notes are presumptively securities, with that presumption

rebuttable where Reves’s four-factor analysis indicates that the note was delivered in a commercial or consumer

context and not in an investment context).

See Landreth Timber Co. v. Landreth, 471 U.S. 681, 686 (1985) (holding that the characteristics typical of

“stock” are “(i) the right to receive dividends contingent upon an apportionment of profits; (ii) negotiability;

(iii) the ability to be pledged or hypothecated; (iv) the conferring of voting rights in proportion to the number of

shares owned; and (v) the capacity to appreciate in value”).

SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, 351 (1943).

rules. 39 The Commission and Federal courts typically have evaluated the security status of crypto

assets and crypto asset transactions under an investment contract analysis. 40

In Howey, the Supreme Court defined the term “investment contract” in a way that it

intended to be “capable of adaptation to meet the countless and variable schemes devised by

those who seek the use of the money of others on the promise of profits.” 41 Under Howey, the

term “investment contract” means any contract, transaction, or scheme whereby a person invests

money in a common enterprise and reasonably expects profits to be derived from the efforts of

others. 42 This definition, known as the “Howey test,” 43 is intended to afford “the SEC and the

courts sufficient flexibility to ensure that those who market investment contracts are not able to

escape the coverage of the Federal securities laws by creating new instruments that would not be

covered by a more determinate definition.” 44 Since the Supreme Court decided Howey in 1946,

Federal courts have applied the Howey test to a broad range of contracts, transactions, and

schemes. 45

Id.

See, e.g., The DAO Report; SEC v. Telegram Grp. Inc., 448 F. Supp. 3d 352 (S.D.N.Y. 2020).

Howey, 328 U.S. at 299.

Id. at 298-99. The Howey test’s “efforts of others” requirement is satisfied when “the efforts made by those

other than the investor are the undeniably significant ones, those essential managerial efforts which affect the

failure or success of the enterprise.” See, e.g., SEC v. v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482

(9th Cir. 1973). Federal courts also have stated that administrative and ministerial activities are not managerial

efforts that satisfy Howey’s “efforts of others” requirement. See, e.g., First Fin. Fed. Sav. & Loan v. E.F. Hutton

Mortgage, 834 F.2d 685 (8th Cir. 1987) (activities performed were merely administrative and ministerial in

nature and therefore did not constitute the managerial efforts of others); Union Planters National Bank of

Memphis v. Commercial Credit Business Loans, Inc., 651 F.2d 1174 (6th Cir. 1981) (stating that administrative

tasks and services are not managerial under Howey); see also Donovan v. GMO-Z.com Tr. Co., Inc., 779 F.

Supp. 3d 372, 388 (S.D.N.Y. 2025) (“Ministerial, technical, and clerical tasks often are ‘necessary’ for an

investment scheme to operate and thereby generate a profit, but courts have long found such efforts to be

insufficient under Howey’s third prong.”). In this release, we refer to managerial efforts that meet the Howey

test’s “efforts of others” requirement as “essential managerial efforts.”

See supra note 7.

Reves, 494 U.S. at 63 n.2.

As noted above, the definition of “security” also includes a “certificate of interest or participation in any profitsharing agreement.” The term “certificate of interest or participation in any profit-sharing agreement” does not

III.

CLASSIFICATION OF CRYPTO ASSETS

Virtually any type of security, good, service, right, or interest can be represented in a

digital format as a crypto asset. The developer of a crypto asset can determine the quantity of

units of a crypto asset that will be generated, the parameters for distribution of the crypto asset,

and the functionality (or lack thereof) of the crypto asset, among other things. The developer can

generate crypto assets as fungible units or as non-fungible units (commonly known as “nonfungible tokens” or “NFTs”). 46 As such, crypto assets encompass a broad range of instruments

with varying characteristics, uses, and functions. For purposes of this release, we classify crypto

assets into five categories based on their characteristics, uses, and functions: (i) digital

commodities; (ii) digital collectibles; (iii) digital tools; (iv) stablecoins; and (v) digital securities.

Digital commodities, digital collectibles, and digital tools, each as further described

below, are not themselves securities. However, as with any asset that is not a security, a nonsecurity crypto asset can be offered and sold subject to an investment contract, which is a

security. 47 Stablecoins, as further described below, are a broad category of crypto assets that may

or may not be securities depending on their characteristics. Digital securities, as further described

below, are securities. Given the variations in crypto assets and the constantly evolving nature of

the crypto asset markets, including the underlying technology, there may be crypto assets that do

have a meaning broader than that of “investment contract.” See Int’l Brotherhood of Teamsters v. Daniel, 439

U.S. 551, 558 n.11 (1979) (stating that a “certificate of interest … in any profit-sharing agreement” does not

have “any broader meaning under the Securities Acts than an ‘investment contract’”). Accordingly, a financial

instrument that is not an investment contract cannot be a certificate of interest or participation in any profitsharing agreement. It is possible, but not necessarily the case, that an instrument that is an “investment contract”

could also be a “certificate of interest or participation in any profit-sharing agreement.” See, e.g., Tcherepnin v.

Knight, 389 U.S. 332, 336 (1967).

An NFT is a non-interchangeable crypto asset with a unique digital identifier. Because NFTs constitute unique

crypto assets, they cannot be replicated. In contrast, fungible crypto assets are interchangeable, which means

that they are identical and of equal value and substitutable for one another.

See infra section IV. The 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.

not fall within any of these five categories, as well as crypto assets with hybrid characteristics

that may fall within more than one category.

Digital Commodities 48

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, 49 as well as supply and

demand dynamics, rather than from the expectation of profits from the essential managerial

efforts of others. 50 A digital commodity 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 or other entity, promisor, or obligor, but may have certain other rights (as

discussed below). Examples of digital commodities include 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 (XRP). 51

For purposes of this release, we are using the term “commodity” in an economic and commercial sense (i.e.,

assets that are fungible, have utility, and whose value is determined by supply and demand). However, any nonsecurity crypto asset, other than a “payment stablecoin issued by a permitted payment stablecoin issuer,” as

such terms are defined in section 2 of the GENIUS Act, could meet the definition of “commodity” under the

Commodity Exchange Act. See 7 U.S.C. 1a(9).

For purposes of this release, a crypto system is “functional” if the system’s native crypto asset can be used on

the system in accordance with the programmatic utility of the system. The term “native” in the context of a

crypto asset refers to a crypto asset generated for use on a particular crypto system.

A digital commodity may be native to a crypto system that is decentralized. For purposes of this release, a

crypto system is “decentralized” if the crypto system functions and operates autonomously with no person,

entity, or group of persons or entities having operational, economic, or voting control of the crypto system.

Based on our understanding of their characteristics, terms, and functions as of the date of this release, the

Commission concludes that each of these crypto assets is a digital commodity because they are intrinsically

linked to and derive their 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. As of the date of this release, each of these digital commodities underlies a futures contract that has

been made available to trade on a designated contract market operating under the regulatory oversight of the

CFTC. To be clear, it is not necessary that a crypto asset underlie such a futures contract to be a digital

commodity; rather, the fact that these digital commodities underlie such a futures contract explains their

selection as examples for this release. For example, based on their characteristics, terms, and functions as of the

date of this release, Algorand (ALGO) and LBRY Credits (LBC), neither of which underlies such a futures

contract, are digital commodities because they are intrinsically linked to and derive their value from the

A digital commodity is necessary to participate in or use certain aspects of an associated

functional crypto system. The programmed purpose of a digital commodity is to facilitate and

incentivize the validation, ordering, and confirmation of transactions on the associated functional

crypto system, serve as a mechanism to maintain the functioning and/or security of the

associated functional crypto system, and foster network effects. 52 Accordingly, a digital

commodity is integral to the operation of the associated functional crypto system. For example, a

digital commodity typically conveys to holders certain technical rights with respect to the

associated functional crypto system, such as enabling holders to participate in the system’s

consensus mechanism by staking (or locking up) the system’s native digital commodity. 53 A

digital commodity also may convey to holders certain governance rights with respect to the

associated functional crypto system. Such a “governance token” typically allows holders to vote

on certain technical or governance matters, such as software upgrades and treasury expenditures.

Further, a functional crypto system may require users to pay transaction (or “gas”) fees in the

system’s native digital commodity. These gas fees—in addition to units of the digital commodity

newly generated by the protocol—typically are used as an incentive mechanism to reward

participation in and use of the associated functional crypto system.

A digital commodity itself, as described in this release, is not a security because it does

not have the economic characteristics of a security. A digital commodity does not constitute any

of the financial instruments enumerated in the definition of “security” because, among other

things, it does not represent a digitized form of any such instruments, including an investment

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.

For purposes of this release, “network effects” refers to the phenomenon where the value, use, and security of a

crypto system increase as more users participate and interact with the crypto system.

See infra section V for a more detailed explanation of “staking” and “consensus mechanism.”

contract. Like commodities generally, a digital commodity has intrinsic value derived from the

value of the goods and services that may be produced or accessed using that commodity, as well

as from supply and demand dynamics. Users of a functional crypto system use the system’s

native digital commodity to interact with the system’s features and functionalities. A functional

crypto system incorporates economic mechanisms that reward voluntary cooperation and

coordination among the system’s users. Users are encouraged to participate in a functional crypto

system based on its economic mechanism design, and developers are incentivized to build crypto

applications for functional crypto systems that successfully attract users. A functional crypto

system does not have a central party 54 that oversees participation or distributes rewards to users.

As a result, the value of a digital commodity is intrinsically linked to the programmatic

functioning of the associated functional crypto system. Therefore, given that a digital commodity

is associated with a functional crypto system, a purchaser would not reasonably expect to profit

based on the essential managerial efforts of others.

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. A digital collectible 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 or other entity, promisor, or obligor. Examples of digital collectibles available in the

markets today, based on our understanding of their characteristics, terms, and functions as of the

For purposes of this release, a “central party” is a person, entity, or group of persons or entities having

operational, economic, or voting control of a crypto system.

date of this release, include CryptoPunks, 55 Chromie Squiggles, 56 Fan Tokens, 57 WIF, 58 and

VCOIN. 59

Like physical collectibles, digital collectibles do not provide holders with any legal rights

or interest in or with respect to a business enterprise or other entity, promisor, or obligor

associated with the creator of the digital collectible or otherwise. 60 Digital collectibles may

provide holders with a limited license or other intellectual property rights, often pursuant to an

end user agreement. For example, creators of unique artwork digital collectibles often provide

holders with the right to display and commercialize the acquired artwork. 61 Social media

platforms, video games, and other consumer applications sometimes incorporate digital

collectibles to enhance the user experience and facilitate network effects. The developers of these

applications often reward early users with digital collectibles or allow active users to earn digital

See https://cryptopunks.app.

See https://chromie-squiggles.com.

See https://www.socios.com/fan-tokens. Fan Tokens have hybrid characteristics and could be classified as

digital tools.

See https://dogwifhat.us.

See https://vcoin.imvu.com.

Digital collectibles may be programmed to transmit automatically a portion of the sale price of the collectible to

the creator as a royalty each time that it is resold or otherwise transferred. These royalties may provide the

creator of the digital collectible with a long-term payment stream from the creator’s work, even after the initial

sale (i.e., when subsequent sales or transfers of the digital collectible are solely between third parties). Royalties

typically are based on a percentage of the transaction value each time a digital collectible is resold. The creator

sets the percentage at the time the digital collectible is created, and the ongoing payments are automated. As

such, whenever the digital collectible is resold, the amount of the royalties is automatically calculated and

transferred to the creator. The digital collectible holder does not receive any share of the creator royalty, and the

digital collectible holder has no rights or interest in or with respect to a business enterprise or other entity,

promisor, or obligor associated with the creator. Accordingly, the existence of a creator royalty does not change

a digital collectible into a security.

Digital collectibles sometimes are issued as part of a digital collection (i.e., a group of digital collectibles that

share a common theme, style, or project). A digital collection typically follows a particular aesthetic theme and

includes a wide variety of unique traits, which allows the creator of the digital collection to incorporate slight

variations with varying degrees of rarity or scarcity throughout the collection. A digital collection is analogous

to a series of artworks based on a single theme, such as Andy Warhol’s “Campbell’s Soup Cans” series

containing 32 different paintings. The inclusion of a digital collectible in a digital collection does not change the

digital collectible into a security.

collectibles by engaging with the application. These digital collectibles include badges, video

game “skins,” and rewards points.

Some digital collectibles have limited or no functionality. For example, a “meme coin” is

a type of crypto asset inspired by internet memes, characters, current events, or trends for which

the creator seeks to attract an enthusiastic online community to purchase the meme coin and

engage in its trading. 62 Meme coins typically are acquired for artistic, entertainment, social, and

cultural purposes, and their value is driven by supply and demand, rather than any essential

managerial efforts of others. Nonetheless, meme coin holders may create uses for meme coins,

such as by limiting access to a chatroom to meme coin holders or whitelisting meme coin holders

for an airdrop. 63 Further, a crypto asset may be offered and sold initially as a meme coin that has

no functionality within an associated functional crypto system (and no related representations or

promises to create such functionality or crypto system) and that derives its value from the asset’s

artistic, entertainment, social, or cultural significance, but later become a digital commodity

because it becomes functional within an associated functional crypto system.

A digital collectible itself, as described in this release, is not a security because it does not

have the economic characteristics of a security. 64 A digital collectible does not constitute any of

The Division of Corporation Finance (“Corporation Finance”) issued a statement addressing the

characterization of meme coins under the definition of “security.” See U.S. Securities and Exchange

Commission, Division of Corporation Finance, Staff Statement on Meme Coins (Feb. 27, 2025), available at

https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme-coins. That statement and any other

staff statement referenced in this release is not a rule, regulation, guidance, or statement of the Commission, and

the Commission has neither approved nor disapproved its content. Staff statements have no legal force or effect:

they do not alter or amend applicable law, and they create no new or additional obligations for any person. For

the avoidance of doubt, the views expressed by the Commission in this release supersede any prior statements

by the Commission or its staff on these topics.

For purposes of this release, “whitelisting” is the practice of explicitly allowing only pre-approved applications,

users, email addresses, or IP addresses to access a crypto system or service. For a description of “airdrops,” see

infra section VII.

Digital collectibles are onchain analogues to physical collectibles, which generally have not been regulated as

securities.

the financial instruments enumerated in the definition of “security” because, among other things,

it does not represent a digitized form of any such instruments, including an investment contract.

Digital collectibles generally have artistic, entertainment, social, or cultural value or utility. The

purchase of a digital collectible is not an investment in any business enterprise or other entity,

promisor, or obligor associated with the creator of the digital collectible.

Like a physical collectible, a digital collectible’s value is not based on the 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

digital collectible, as is the case with physical collectibles. For example, buying a digital

collectible with the hope that its subject matter, popularity, or scarcity will increase its price is

like buying a piece of art with the hope that market forces will create demand for the art and

increase its price. While the value of a digital collectible may be impacted directly or indirectly

by the activities or reputation of the creator—as may occur with respect to a physical

collectible—the creator of a digital collectible typically does not make representations or

promises to undertake essential managerial efforts from which a purchaser would reasonably

expect to derive profits. 65

However, as can be the case with physical collectibles, 66 the offer and sale of a digital

collectible that either is fractionalized or otherwise enables individuals to acquire a fractional

ownership interest of a single digital collectible, could constitute the offer or sale of a security

If the creator of a digital collectible facilitates network effects, including through the use of a digital collectible,

such activities do not constitute essential managerial efforts. See infra section IV.A.

For example, fractionalized interests in artwork may in some circumstances be deemed securities even though

the underlying artwork itself is not a security because interests in the fractional pool may constitute investment

contracts.

because it may involve essential managerial efforts from which a purchaser would reasonably

expect to derive profits and, therefore, may be offered and sold as an investment contract. 67

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. Digital tools are commonly issued for use in

connection with crypto systems and are designed to perform practical functions within such

systems. Digital tools often are non-transferrable or “soul-bound,” 68 and their value is derived

from their practical functionality. Digital tools may be issued by a central party or autonomously

in accordance with the programmatic functioning of a crypto system. 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 or other entity, promisor, or obligor.

Examples of digital tools available in the markets today, based on our understanding of their

characteristics, terms, and functions as of the date of this release, include Ethereum Name

Service domain names 69 and CoinDesk’s ‘Microcosms’ NFT Consensus Ticket. 70

A digital tool itself, as described in this release, is not a security because it does not have

the economic characteristics of a security. 71 A digital tool does not constitute any of the financial

In Howey, the Supreme Court held that offers and sales of individual parcels of a citrus grove, when paired with

service contracts giving the offeror/seller exclusive rights to access and manage the land, and providing

purchasers a share of the profits, were offers and sales of investment contracts, rather than just offers and sales

of real estate. While selling the whole citrus grove to a single, active owner might have been a real estate sale,

the subdivision of the citrus grove combined with centralized management of the parcels meant that purchasers

depended on the seller’s essential managerial efforts for profits.

Soul-bound digital tools are designed for permanent association with a specific digital identity and are intended

to represent aspects of an individual’s or entity’s identity that typically are not transferable, such as academic

degrees, professional certifications, memberships, or verifiable work history.

See https://ens.domains.

See https://www.coindesk.com/business/2024/01/31/coindesk-brings-back-microcosms-nft-consensus-ticket.

Digital tools are onchain analogues to physical utilities, which generally have not been regulated as securities.

instruments enumerated in the definition of “security” because, among other things, it does not

represent a digitized form of such instruments, including an investment contract. Persons acquire

digital tools for their functional utility and do not have any rights or interest in or with respect to

a business enterprise or other entity, promisor, or obligor just as persons acquiring a museum

membership do not expect to realize a profit from the essential managerial efforts of the

museum’s operators. The price at which the digital tool may be resold, if it may be resold at all,

is based upon its functional utility rather than any expectation of profits from any essential

managerial efforts of its developer. While the value of a digital tool may be impacted directly or

indirectly by the activities of the developer, the creator of a digital tool typically does not make

representations or promises to undertake any essential managerial efforts from which a purchaser

would reasonably expect to derive profits. 72

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. 73 In July 2025, Congress enacted the GENIUS Act, which

creates a comprehensive regulatory framework for a specific type of stablecoin called a

“payment stablecoin.” 74 The GENIUS Act excludes from the definition of “security” any

“payment stablecoin issued by a permitted payment stablecoin issuer,” as such terms are defined

in section 2 of the GENIUS Act. 75 A “payment stablecoin” is defined as a digital asset that is, or

is designed to be, used as a means of payment or settlement, and the issuer of which generally is

obligated to convert, redeem, or repurchase the digital asset for a fixed amount of monetary

If the creator of a digital tool facilitates network effects, including through the use of a digital tool, such

activities do not constitute essential managerial efforts. See infra section IV.A.

See PWG Report.

See supra note 1.

See section 17 of the GENIUS Act.

value, and represents that it will maintain, or create the reasonable expectation that it will

maintain, a stable value relative to the value of a fixed amount of monetary value. 76

A “permitted payment stablecoin issuer” is defined as a person formed in the United

States that is: (1) a subsidiary of an insured depository institution that has been approved to issue

payment stablecoins under section 5 of the GENIUS Act; (2) a Federal qualified payment

stablecoin issuer; or (3) a State qualified payment stablecoin issuer. 77 A permitted payment

stablecoin issuer is prohibited under the GENIUS Act from paying any form of interest or yield

to the permitted stablecoin holders (whether in cash, tokens, or other consideration) solely in

connection with the holding, use, or retention of the payment stablecoin. 78 These crypto assets

categorically will not be securities by operation of statute after the effective date of the GENIUS

Act. Stablecoins other than payment stablecoins issued by a permitted payment stablecoin issuer

may meet the definition of “security” depending on the facts and circumstances.

Prior to the enactment of the GENIUS Act, Corporation Finance issued a statement

addressing the characterization of certain stablecoins—referred to therein as “Covered

Stablecoins”—under the definition of “security.” 79 Given that the GENIUS Act is not yet

effective, 80 and to clarify the Commission’s views on the application of the Howey test to

See section 2(22) of the GENIUS Act.

See section 2(23) of the GENIUS Act.

See section 4(a)(11) of the GENIUS Act.

See U.S. Securities and Exchange Commission, Division of Corporation Finance, Staff Statement on Stablecoins

(Apr. 4, 2025), available at https://www.sec.gov/newsroom/speeches-statements/statement-stablecoins-040425

(the “Staff Stablecoin Statement”). The Staff Stablecoin Statement and any other staff statement referenced in

this release is not a rule, regulation, guidance, or statement of the Commission, and the Commission has neither

approved nor disapproved its content. Staff statements have no legal force or effect: they do not alter or amend

applicable law, and they create no new or additional obligations for any person. For the avoidance of doubt, the

views expressed by the Commission in this release supersede any prior statements by the Commission or its

staff on these topics.

The GENIUS Act will become effective on the earlier of 18 months after its date of enactment (July 18, 2025)

or the date that is 120 days after the date on which the primary Federal payment stablecoin regulators issue any

final regulations implementing the GENIUS Act.

stablecoins, the Commission interprets that, for the reasons set forth in the Staff Stablecoin

Statement, the offer and sale of Covered Stablecoins does not involve the offer and sale of

securities within the meaning of section 2(a)(1) of the Securities Act or section 3(a)(10) of the

Exchange Act. 81 Accordingly, persons involved in the process of issuing and redeeming Covered

Stablecoins do not need to register those transactions with the Commission under the Securities

Act or fall within one of the Securities Act’s exemptions from registration. The foregoing

interpretation does not address stablecoins other than Covered Stablecoins as described in the

Staff Stablecoin Statement.

Digital Securities

A digital security (commonly known as a “tokenized” security) is a financial instrument

enumerated in the definition “security” that is formatted as or represented by a crypto asset,

where the record of ownership is maintained in whole or in part on or through one or more

crypto networks. 82 There are a variety of models used to tokenize securities, but they may vary in

terms of structure and the rights afforded to holders. As such, the rights of a holder of the crypto

asset may be materially different from the rights of a holder of the underlying security, including

economic and voting rights. Tokenized securities generally fall into two categories: (1) securities

tokenized by or on behalf of the issuers of such securities; and (2) securities tokenized by third

Although not included in the statutory exclusion from the definition of “security” in section 17 of the GENIUS

Act, payment stablecoins issued by a “foreign permitted stablecoin issuer” (as the term is defined in the

GENIUS Act) registered with the Comptroller of the Currency will generally not meet the definition of

“security,” as such payment stablecoins will generally be considered “Covered Stablecoins.” See section 18 of

the GENIUS Act; Staff Stablecoin Statement.

Tokenization is the process of creating a digital representation of a tangible or intangible asset using blockchain

or similar distributed ledger technology. See PWG Report. A non-security crypto asset that is subject to an

investment contract is not a tokenized security. See supra note 47. Further, a stablecoin that meets the definition

of “security” based on its particular facts and circumstances is a tokenized security. See supra section III.D.

parties unaffiliated with the issuers of such securities, which may involve the third party issuing

a separate security that derives its value from or is otherwise linked to the subject security.

A security is a security regardless of whether it is issued, or otherwise represented,

offchain or onchain. All devices and instruments that have the economic characteristics of a

security are securities regardless of format or label. Many digital securities convey the same

legal rights with respect to a business enterprise or other entity, promisor, or obligor as offchain

securities. Some digital securities do not convey the same legal rights as offchain securities but

instead entitle the holder to receive economic distributions from a central party that manages a

business enterprise or other entity, promisor, or obligor on behalf of digital security holders.

Purchasers of this latter type of digital security invest in a business enterprise or other entity,

promisor, or obligor operated by a central party and look to the central party to earn such

distributions. Further, digital securities may provide non-financial benefits to holders, similar to a

digital commodity, digital collectible, or digital tool. A digital security does not fall outside of the

definition of “security” merely because it provides such non-financial benefits.

IV.

CRYPTO ASSETS THAT ARE SUBJECT TO AN INVESTMENT CONTRACT

How Crypto Assets Become Subject to an Investment Contract

How an issuer 83 markets and promotes a contract, transaction, or scheme is relevant to

assessing whether the issuer is offering or selling an investment contract. 84 A non-security crypto

asset becomes 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

For purposes of this release, references to an “issuer” include affiliates and agents of the issuer or a promoter.

For example, in finding that certain instruments issued by a housing cooperative were not “securities,” the

Supreme Court in Forman specifically noted that: “Nowhere does the [co-operative’s Information] Bulletin seek

to attract investors by the prospect of profits resulting from the efforts of the promoters or third parties. On the

contrary, the Bulletin repeatedly emphasizes the ‘nonprofit’ nature of the endeavor.” 421 U.S. at 854; see also

Joiner, 320 U.S. at 352-53.

essential managerial efforts from which a purchaser would reasonably expect to derive profits. 85

A purchaser’s reasonable profit expectations depend on the issuer’s representations or promises

to engage in such essential managerial efforts. 86 Absent such representations or promises being

conveyed to purchasers, 87 it would not be reasonable for a purchaser to expect profits from the

contract, transaction, or scheme.

Whether it would be reasonable for a purchaser to expect profits based on representations

or promises to engage in essential managerial efforts depends on the specific facts and

circumstances, taken as a whole, under which those representations and promises are made. 88 For

example, the source of the representations or promises is relevant to a purchaser’s reasonable

expectations. Because the issuer establishes the essential managerial efforts that it intends to

undertake, it would be reasonable for a purchaser to expect profits based on the explicit

representations or promises to engage in essential managerial efforts made by or on behalf of the

issuer and conveyed to purchasers. In contrast, it would not be reasonable for a purchaser to

Courts have similarly determined that other types of non-securities, such as real estate, have been offered and

sold subject to investment contracts. See, e.g., Howey, 328 U.S. 293 (real estate); Continental Marketing

Corporation v. SEC, 387 F.2d 466 (10th Cir. 1967), cert. denied, 391 U.S. 905 (1968) (beavers); Miller v.

Central Chinchilla Group, Inc., 494 F.2d 414 (8th Cir. 1974) (chinchillas); Glen-Arden Commodities v.

Costantino, 493 F.2d 1027 (2nd Cir. 1974) (Scotch whisky warehouse receipts). The Commission expects that

contracts for the purchase and delivery of a “payment stablecoin issued by a permitted payment stablecoin

issuer” (as defined in the GENIUS Act) that do not involve a reasonable expectation of profit to be derived from

the essential managerial efforts of others generally would not be considered to be offered and sold as investment

contracts, regardless of when delivery occurs.

As the Supreme Court stated in Howey with respect to citrus groves subject to an investment contract,

purchasers “have no desire to occupy the land or develop it themselves; they are attracted solely by the

prospects of a return on their investment.” Howey, 328 U.S. at 300. The purchasers’ motivations were

demonstrated by their granting the issuer exclusive rights to occupy and develop the land in exchange for a

share in the profits resulting from that development.

For purposes of this release, references to a “purchaser” include prospective purchasers.

This release addresses the scope of representations or promises relevant to a reasonable expectation of profits

under Howey, and is distinct from and does not delineate the scope of other provisions of the Federal securities

laws, including the antifraud provisions (e.g., 15 U.S.C. 77q, 78j), and disclosure obligations applicable to

registration statements and periodic reports by reporting companies (e.g., 15 U.S.C. 77g, 77aa, 78m).

expect profits based on representations or promises made by third parties, 89 such as unaffiliated

proponents of 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. 90 Moreover,

the timing of the representations or promises is relevant to a purchaser’s reasonable

expectations. 91 Of necessity, in order to shape a purchaser’s expectations, the representations or

promises must be conveyed to the purchaser prior to or contemporaneously with the issuer’s

offer or sale to the purchaser. As such, the issuer’s post-sale representations or promises would

not convert the prior sale into an offer or sale of an investment contract.

Similarly, the manner in which the representations or promises are made is relevant to a

purchaser’s reasonable expectations. It is reasonable for a purchaser to expect profits based on

representations or promises conveyed to purchasers in written or oral agreements, public

communications through which the issuer has established a regular pattern of communicating

(such as the issuer’s website or official social media accounts), direct private communications

between the issuer and purchasers, regulatory filings publicly available to purchasers, or

documents clearly attributable to the issuer (such as a whitepaper). 92 Outside of such channels,

the reasonableness of a purchaser’s expectations of profit depends on whether the representations

or promises are widely disseminated, the specific means by which the representations or

promises are conveyed, and the issuer’s established communication practices.

However, where the third party and the issuer collude to convey representations or promises, it would be

reasonable for a purchaser to expect profits based on those explicit representations or promises.

See, e.g., the definition of a “person acting on behalf of an issuer” in section 101(c) of Regulation FD (17 CFR

243.101(c)).

For additional discussion of the timing of representations or promises, see infra section IV.B.2.

For purposes of this release, “whitepaper” refers to a document that describes the technical aspects of a crypto

asset project (i.e., a crypto asset and the associated crypto system) along with other relevant details.

Further, representations or promises are more likely to create reasonable expectations of

profit when they 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. Representations or promises by an issuer conveyed to purchasers

to develop and achieve functionality for a non-security crypto asset and/or develop an associated

crypto system together with a business plan containing detailed milestones, a timeline,

information about personnel, sources of funding and other resources needed to meet those

milestones, and an explanation of how holders of the non-security crypto asset will profit from

those efforts, likely would reasonably create an expectation of profit because they speak directly

to those essential managerial efforts that affect the failure or success of the project. 93 In contrast,

representations or promises that are vague or 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.

The issuer’s representations or promises to engage in essential managerial efforts from

which a purchaser would reasonably expect to derive profits, when combined with an investment

of money in a common enterprise, creates an investment contract under the Howey test. As is the

case with other non-security assets, 94 the 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. For

this reason, a non-security crypto asset that has been subject to an investment contract does not

This discussion addresses one example, and the presence or absence of any single activity may not be outcome

determinative when determining whether any particular contract, transaction, or scheme constitutes an

investment contract.

See supra note 85.

remain subject to the associated investment contract in secondary market transactions where

purchasers would not reasonably expect such representations or promises to remain connected to

the non-security crypto asset. If, on the other hand, purchasers would reasonably expect such

representations or promises to remain connected to the non-security crypto asset, the nonsecurity crypto asset would continue to be subject to the associated investment contract in

secondary market transactions. Under such circumstances, secondary market offers and sales of

such a non-security crypto asset would constitute securities transactions that must be registered

under the Securities Act or conducted pursuant to an available exemption from registration. The

associated investment contract will continue to be transferred to subsequent purchasers of the

non-security crypto asset in secondary market transactions until the non-security crypto asset

separates from the issuer’s representations or promises, as discussed below.

Separation of a Non-Security Crypto Asset from the Issuer’s Representations

or Promises

A non-security crypto asset that was offered and sold subject to an investment contract

does not necessarily remain subject to the associated investment contract in perpetuity. A nonsecurity crypto asset remains subject to the associated investment contract if purchasers continue

to have a reasonable expectation of profits to be derived from the issuer’s essential managerial

efforts. For that to be so, purchasers must continue to reasonably expect the issuer’s

representations or promises to engage in essential managerial efforts to remain connected to the

non-security crypto asset.

When a purchaser of a non-security crypto asset that has been subject to an investment

contract could no longer reasonably expect the issuer’s representations or promises to engage in

essential managerial efforts to remain connected to the non-security crypto asset, the non-

security crypto asset separates from such representations or promises, and thereafter the nonsecurity crypto asset is not subject to the Federal securities laws. This separation of the nonsecurity crypto asset from the issuer’s representations or promises to engage in essential

managerial efforts may 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. As discussed below, we would not expect a non-security crypto asset to be subject to an

investment contract when any of the following non-exclusive indicia of separation is present.

Fulfillment of the Issuer’s Representations or Promises

A non-security crypto asset that was offered and sold subject to an investment contract is

no longer subject to the associated investment contract once the issuer has fulfilled its

representations or promises to engage in essential managerial efforts, even if the issuer continues

to provide efforts that are not essential managerial efforts with respect to the non-security crypto

asset or an associated crypto system or other software project. 95 Because the issuer has fulfilled

the essential managerial efforts it represented or promised it would undertake, purchasers no

longer have any reasonable expectations of profits to be derived from those efforts. Such

representations or promises to engage in essential managerial efforts could, for example, relate to

developing certain functionalities or features for the non-security crypto asset or the associated

crypto system or other software project, achieving certain software development milestones on a

roadmap, or open-sourcing related computer code. 96 Upon the issuer’s fulfillment of such

For examples of activities that the Commission does not view as ongoing essential managerial efforts, see supra

section IV.A.

Whether an issuer fulfills its representations or promises to engage in essential managerial efforts depends on

how the issuer defines or otherwise describes such efforts in marketing and promoting the investment contract.

For example, if the issuer represents or promises to achieve decentralization of an associated crypto system,

whether the issuer has achieved decentralization would be based on how the issuer defined or otherwise

described decentralization, not a general market conception of what constitutes decentralization. Similarly, if the

issuer represents or promises to achieve certain functionality for a crypto asset and its associated crypto

representations or promises, the issuer is no longer offering or selling an investment contract and

the investment contract itself ceases to exist. Accordingly, the issuer’s subsequent offers or sales

of the non-security crypto asset would not constitute securities transactions unless the issuer

creates a new investment contract to which the non-security crypto asset is subject.

To illustrate, a non-security crypto asset may be offered and sold subject to an investment

contract in a primary offering for immediate delivery or delayed delivery. In an offering

involving immediate delivery, such as through an “initial coin offering,” the issuer agrees to

deliver newly generated non-security crypto assets immediately to investors in exchange for their

investment. In an offering involving delayed delivery, such as through a “simple agreement for

future tokens,” the issuer agrees to deliver non-security crypto assets that have not yet been

generated to investors at a later date in exchange for their investment today. In either case, the

sale of the non-security crypto assets occurs at the time of entry into the agreement with the

investors (with settlement occurring either immediately or at a future date), 97 at which time the

non-security crypto assets become subject to an investment contract regardless of when they are

delivered.

Upon delivery, where a purchaser would not reasonably expect profit from the efforts of

the issuer (such as where the issuer has publicly disclosed that it completed the essential

managerial efforts it represented or promised it would undertake), the non-security crypto assets

are no longer subject to the associated investment contract because a necessary element of an

investment contract no longer exists. In contrast, upon delivery, where a purchaser would

network, whether the issuer has achieved functionality would be based on how the issuer defined or otherwise

described functionality, not a general market conception of what constitutes functionality.

See Securities Offering Reform, Release No. 33-8591 (July 19, 2005) [70 FR 44721, 44765 n.391 (Aug. 3,

2005)].

reasonably expect profits from the efforts of the issuer (such as where the issuer has continued

providing essential managerial efforts in accordance with its representations or promises or has

not publicly disclosed that it completed the essential managerial efforts it represented or

promised it would undertake), the non-security crypto assets would continue to be subject to the

associated investment contract.

Failure to Satisfy Issuer’s Representations or Promises

A non-security crypto asset that was offered and sold subject to an investment contract is

no longer subject to an investment contract if a purchaser would not reasonably expect the issuer

to be able to fulfill or to continue to engage in the essential managerial efforts it represented or

promised it would undertake. There are several reasons why this could occur. For example, a

sufficiently long period of time may have passed since the issuer’s offer and sale of the

investment contract and, during this time period, it has become clear to investors that the issuer

has neither conducted the essential managerial efforts it represented or promised it would

undertake nor indicated that it still intends to conduct such efforts. Similarly, the issuer may

publicly announce that it will no longer perform the essential managerial efforts it represented or

promised it would undertake (e.g., where the issuer effectively “abandons” the development of a

crypto system). 98

Under these circumstances, a purchaser of the non-security crypto asset would not

reasonably expect an issuer’s past representations or promises to engage in essential managerial

efforts to continue to remain connected to the non-security crypto asset. Accordingly, such

purchaser would not reasonably expect the non-security crypto asset to be subject to the

A public announcement of non-performance should be widely disseminated to market participants and

unambiguous in order for investors to no longer reasonably expect the issuer to perform the essential managerial

efforts.

associated investment contract. An issuer that fails to perform or otherwise complete the essential

managerial efforts it represented or promised it would undertake may face liabilities under the

Federal securities laws for these failures, including under the anti-fraud provisions of the Federal

securities laws.

To illustrate, a non-security crypto asset is offered and sold subject to an investment

contract comprising the issuer’s representations or promises to undertake certain essential

managerial efforts in connection with the development of a crypto system. The offer and sale of

that investment contract must be registered under the Securities Act or conducted pursuant to an

exemption from registration. As the issuer endeavors to develop the crypto system, the issuer

experiences difficulties that affect its ability to fulfill the essential managerial efforts it

represented or promised to undertake, such as insufficient funding or other resources, poor

system architecture, technical issues (e.g., scalability problems, smart contract flaws, or security

vulnerabilities), competition, poor management, and market conditions. Based on these

difficulties, the issuer decides that it is unable or unwilling to fulfill the essential managerial

efforts it promised to undertake and abandons the development of the crypto system.

In such case, if the issuer publicly announces through a widely disseminated

communication that it is abandoning the development of the crypto asset and will no longer

perform the essential managerial efforts it represented or promised it would undertake when the

investment contract was created, it would not be reasonable to expect the issuer’s representations

or promises to engage in such essential managerial efforts to remain connected to the nonsecurity crypto asset. Accordingly, the non-security crypto asset would no longer be subject to

the associated investment contract, and the associated investment contract would cease to exist.

Nevertheless, the issuer would continue to be potentially liable for material misstatements or

omissions in connection with its failure to perform or otherwise complete the essential

managerial efforts that it represented or promised that it would undertake.

Application of the Interpretation

The interpretation above assumes that an investment contract has been created and does

not address or otherwise affect the analysis regarding its creation under the Howey test. The

interpretation only addresses certain circumstances under which a non-security crypto asset that

is subject to an existing investment contract may separate from that investment contract and no

longer be subject to that investment contract. Consequently, the interpretation only applies after

an investment contract is created, even if the investment contract later ceases to exist because the

issuer is unable or unwilling to complete the essential managerial efforts it represented or

promised to undertake when the investment contract was created.

Similarly, the fact that a non-security crypto asset may separate from the associated

investment contract at some time following its creation does not affect the application of the

Federal securities laws with respect to that investment contract. For example, the offer and sale

of a non-security crypto asset that is subject to an investment contract must be registered under

the Securities Act or conducted pursuant to an available exemption. If the issuer fails to register

the offering of that investment contract or conduct it pursuant to an available exemption, the

issuer will violate the Securities Act and investors will have certain rights against the issuer

under the Federal securities laws for this failure to register or use an applicable exemption, even

if the non-security crypto asset subsequently separates from the associated investment contract

and that investment contract ceases to exist. Moreover, if the issuer makes material

misstatements or omissions in connection with the creation of the associated investment contract

or at any time during the existence of that investment contract, the issuer may be subject to

liability under the anti-fraud provisions of the Federal securities laws for such conduct, even if

the non-security crypto asset subsequently separates from the associated investment contract and

that investment contract ceases to exist.

The interpretation in this section IV is intended to underscore the Commission’s view that

how an issuer markets and promotes a contract, transaction, or scheme impacts whether the

issuer is offering or selling an investment contract. To the extent issuers make representations or

promises about essential managerial efforts they plan to undertake, we encourage 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.

FEDERAL SECURITIES LAWS STATUS OF THE CRYPTO ASSET ACTIVITIES

KNOWN AS “PROTOCOL MINING” AND “PROTOCOL STAKING”

Crypto networks rely on cryptography and economic mechanism design to eliminate the

need for designated trusted intermediaries to verify crypto network transactions and provide

settlement assurances to users. The operation of each crypto network is governed by an

underlying software protocol, consisting of computer code, which programmatically enforces

certain rules, technical requirements, and reward distributions. Each protocol incorporates a

“consensus mechanism,” which is a method for enabling the distributed network of unrelated

computers (known as “nodes”) that maintain the peer-to-peer network to agree on the “state” (or

authoritative record of network address ownership balances, transactions, smart contract code,

and other data) of the network. Public, permissionless crypto networks allow anyone to

participate in the crypto network’s operation, including the validation of new transactions to the

crypto network in accordance with the crypto network’s consensus mechanism.

In the following discussion, we provide an interpretation regarding the application of the

Federal securities laws to: (1) certain digital commodity activities known as “mining” on public,

permissionless crypto networks that use proof-of-work (“PoW”) as a consensus mechanism

(“PoW Networks”); and (2) certain digital commodity activities known as “staking” on public,

permissionless crypto networks that use proof-of-stake (“PoS”) as a consensus mechanism (“PoS

Networks”). In this release, we refer to mining digital commodities on PoW Networks as

“Protocol Mining” 99 and staking digital commodities on PoS Networks as “Protocol Staking.” 100

Protocol Mining

Protocol Mining Activities Generally

PoW is a consensus mechanism that incentivizes transaction validation by rewarding

participants, called “miners,” who operate nodes adding computational resources to the PoW

Network. PoW involves validating transactions on a PoW Network and adding them in blocks to

the distributed ledger. The “work” in PoW is the computational resources that miners contribute

Corporation Finance previously issued a statement addressing Protocol Mining. 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-certainproof-work-mining-activities-032025. That statement and any other staff statement referenced in this release is

not a rule, regulation, guidance, or statement of the Commission, and the Commission has neither approved nor

disapproved its content. Staff statements have no legal force or effect: they do not alter or amend applicable law,

and they create no new or additional obligations for any person. For the avoidance of doubt, the views

expressed by the Commission in this release supersede any prior statements by the Commission or its staff on

these topics.

100

Corporation Finance previously issued two statements addressing Protocol Staking. 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-protocolstaking-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. That

statement and any other staff statement referenced in this release is not a rule, regulation, guidance, or statement

of the Commission, and the Commission has neither approved nor disapproved its content. Staff statements

have no legal force or effect: they do not alter or amend applicable law, and they create no new or additional

obligations for any person. For the avoidance of doubt, the views expressed by the Commission in this release

supersede any prior statements by the Commission or its staff on these topics.

to validate transactions and add new blocks to the PoW Network. Miners do not have to own the

PoW Network’s digital commodity to validate transactions.

Miners use computers to solve complex mathematical equations in the form of

cryptographic puzzles. Miners compete with their peers to solve these puzzles, and the first

miner to solve a puzzle is charged with accepting batches of transactions from other nodes and

validating (or proposing) new blocks of transactions to the PoW Network. In exchange for

providing validation services, miners earn rewards in the form of newly generated digital

commodities that are delivered under the terms of the PoW Network’s software protocol. 101 In

this way, PoW provides an incentive for miners to invest the resources necessary to add valid

blocks to the PoW Network.

A miner providing validation services receives the reward only after the other nodes on

the PoW Network verify, through the software protocol, that the solution is correct and valid. To

this end, once a miner finds the correct solution, it broadcasts this information to other miners

who can verify whether the miner properly solved the puzzle to receive the reward. Once

verified, all miners then add the new block to their own copies of the PoW Network. PoW is

designed to secure the PoW Network by requiring miners to spend considerable time and

computational resources to authenticate transactions. When the validation process functions in

this way, it not only makes it less likely that someone would seek to undermine a PoW Network

but also makes it less likely that miners could include altered transactions, such as those enabling

the “double spending” of digital commodities. 102

101

The protocol establishes rules on rewards. Miners cannot change the rewards they receive as the reward

structure is predetermined by the protocol.

102

Double spending involves the same crypto assets being sent to two recipients and can occur when ledger entries

are altered.

In addition to self (or solo) mining, miners can join “mining pools,” which allow miners

to combine their computational resources to increase their chances of successfully validating

transactions and mining new blocks on the PoW Network. There are several types of mining

pools, each with differing methods of operation and reward distribution. 103 A pool operator

typically is responsible for coordinating the miners’ computational resources, maintaining the

pool’s mining hardware and software, overseeing the pool’s security measures to protect against

theft and cyberattacks, and ensuring that the miners are paid their rewards. In return, the pool

operator charges a fee that is deducted from the rewards earned by the mining pool. Reward

payouts vary among pools, although rewards often are distributed across the mining pool in

proportion to the amount of computational resources that each miner contributes to the pool.

Miners generally have no obligation to stay in a pool and can choose to leave a pool at any time.

Covered Protocol Mining Activities

The interpretation below pertains to the following Protocol Mining activities when such

activities conform to the descriptions in this release (“Protocol Mining Activities” and each a

“Protocol Mining Activity”): (1) mining digital commodities on a PoW Network; and (2) the

roles of mining pools and pool operators involved in the Protocol Mining process, including their

roles in connection with the earning and distribution of rewards. Only Protocol Mining Activities

undertaken in connection with the following types of Protocol Mining are addressed in this

release:

103

For example, in a “pay-per-share” model, miners receive a payment for each valid share or block they

contribute to the mining pool, regardless of whether the pool successfully mines a block; in a “peer-to-peer”

model, the pool operator’s role is decentralized among pool members; and in a “proportional” model, miners

receive rewards proportional to the amount of work they contribute to successfully mine a block. There also

may be hybrid pools that offer a combination of different operational and payout methods.

Self (or Solo) Mining, which involves a miner mining digital commodities using its own

computational resources. The miner may work alone or together with others to operate a node

and mine digital commodities.

Mining Pool, which involves miners combining their computational resources with other

miners to increase their chances of successfully validating transactions and mining new blocks

on the PoW Network. Reward payments may flow from the PoW Network directly to the miners

or indirectly to them through the pool operator.

Interpretation Regarding Protocol Mining Activities

Protocol Mining Activities, in the manner and under the circumstances described in this

release, do not involve the offer and sale of a security within the meaning of section 2(a)(1) of

the Securities Act and section 3(a)(10) of the Exchange Act. Accordingly, participants in Protocol

Mining Activities do not need to register transactions with the Commission under the Securities

Act or fall within an available exemption from registration in connection with these Protocol

Mining Activities.

As noted above, 104 a digital commodity itself does not constitute any of the financial

instruments enumerated in the definition of “security.” Accordingly, we conduct our analysis of

certain transactions involving digital commodities in the context of Protocol Mining under the

Howey test.

Self (or Solo) Mining. A miner’s self (or solo) mining is not undertaken with a reasonable

expectation of profits to be derived from the essential managerial efforts of others. Rather, a

miner contributes its own computational resources, which secure the PoW Network and enable

the miner to earn rewards issued by the PoW Network in accordance with its software protocol.

104

See supra section III.A.

To earn rewards, the miner’s activities must comply with the rules of the PoW Network’s

software protocol. By adding its computational resources to the PoW Network, the miner merely

is engaging in an administrative or ministerial activity to secure the PoW Network, validate

transactions and add new blocks, and receive rewards. A miner’s expectation to receive rewards

is not derived from any third party’s essential managerial efforts upon which the PoW Network’s

success depends. Instead, the expected financial incentive from the PoW Network’s software

protocol is derived from the administrative or ministerial act of Protocol Mining performed by

the miner. As such, rewards are payments to the miner in exchange for services it provides to the

PoW Network rather than profits derived from the essential managerial efforts of others.

Mining Pool. Likewise, when a miner combines its computational resources with other

miners to increase their chances of successfully mining new blocks on the PoW Network, the

miner has no expectation of profit derived from the essential managerial efforts of others. By

adding its own computational resources to a mining pool, the miner merely is engaging in an

administrative or ministerial activity to secure the PoW Network, validate transactions and add

new blocks, and receive rewards. In addition, any expectation of profits that the miners have is

not derived from the efforts of a third party, such as a pool operator. Even when participating in a

mining pool, individual miners still perform the actual mining activity by contributing their

computational power to solve the cryptographic puzzles for validation of new blocks. 105

Moreover, whether a miner self (or solo) mines or mines as a member of a mining pool does not

alter the nature of Protocol Mining for purposes of the Howey test. In either case, Protocol

Mining, as described in this release, remains an administrative or ministerial activity. Further, a

105

This assumes miners receive a pro rata share of the rewards from the pool based on their contribution of

computational power, rather than where non-miners can purchase interests in the pool, or miners can pay to

receive greater than a pro rata share of the rewards from the pool based on their contribution of computational

power.

pool operator’s activities in operating the mining pool using the combined computational

resources of participating miners are administrative or ministerial in nature. While some of the

pool operator’s activities may benefit the group of miners, any such efforts are not sufficient to

constitute essential managerial efforts because miners are expecting the computational resources

that they provide in conjunction with other members to the mining pool to earn profits. 106 To this

end, a miner does not join a mining pool based on the ability to earn profits passively from the

activities of the pool operator.

Protocol Staking

Protocol Staking Activities Generally

PoS is a consensus mechanism used to prove that operators of nodes (“Node Operators”)

participating in the PoS Network have contributed value to the PoS Network that, in some cases,

can be forfeited if they act dishonestly. 107 In a PoS Network, a Node Operator must stake the PoS

Network’s digital commodity to be selected programmatically by the PoS Network’s software

protocol to validate new blocks of data to, and update the state of, the PoS Network. 108 When

selected, the Node Operator serves as a “Validator.” In exchange for providing validation

services, Validators earn rewards of two types: (1) newly generated digital commodities that are

programmatically distributed to the Validator by the PoS Network in accordance with its

106

In contrast, where miners passively rely on the pool operator to provide the computational resources, the pool

operator’s activities constitute essential managerial efforts.

107

This release does not address “restaking,” which is a process that allows digital commodities staked on their

associated crypto network to be used on additional crypto systems. The specific staking activities covered by

this release are discussed below in “Covered Protocol Staking Activities.”

108

Validation is the process by which the Node Operator checks and confirms transactions effected on the crypto

network.

software protocol; and (2) a percentage of the transaction fees, paid in digital commodities, by

parties who are seeking to add their transactions to the PoS Network. 109

In PoS Networks, Node Operators must commit or “stake” digital commodities to be

eligible to validate and earn rewards, which typically is effected using a smart contract. When

initially staked, digital commodities are subject to a “bonding period,” which is a length of time

set by the terms of the applicable PoS Network’s software protocol after which the staked digital

commodities become eligible to earn rewards. While staked, the digital commodities are locked

up and cannot be transferred. 110 The Validator does not take possession or control of the staked

digital commodities, which means that ownership and control of the staked digital commodities

do not change.

Each PoS Network’s software protocol contains the rules for operating and maintaining

the PoS Network, including the method of selecting Validators among Node Operators. Some

software protocols provide for random selection of Validators while others employ specific

criteria for selecting Validators, such as the number of digital commodities staked by the Node

Operators. Protocols also may contain rules intended to deter activities that are detrimental to the

PoS Network’s security and integrity, such as validating invalid blocks or double signing (which

occurs when a Validator attempts to add the same transaction to the PoS Network multiple times,

effectively spending the same crypto assets more than once). 111

109

While the protocol establishes rules on rewards, Node Operators generally are free to share rewards or impose

fees for their services in ways that differ from those of the protocol. Some protocols permit a Node Operator to

propose and receive a reward that differs from the protocol’s standard reward.

110

The minimum staking or lock-up period varies among PoS networks. Further, staked digital commodities

typically are subject to an “unbonding period,” which is a length of time set by the terms of the applicable PoS

Network’s software protocol after which digital commodities that are unstaked are unlocked and can be

transferred.

111

A Node Operator or Validator may have its staked digital commodities forfeited or “slashed” if it engages in

such detrimental activities or fails to adhere to the PoS Network’s technical requirements.

Rewards from Protocol Staking provide an economic incentive for participants to use

their digital commodities to secure the PoS Network and ensure its continued operation. An

increase in the amount of staked digital commodities can increase the security of PoS Networks

and mitigate the risk of a hostile party gaining control of a majority of the total staked digital

commodities, which would allow the party to manipulate the PoS Network by influencing the

validation of transactions and potentially altering the PoS Network’s transaction history.

Digital commodity owners (“Owners”) can earn rewards by serving as a Node Operator

and staking their own digital commodities. When self (or solo) staking, the Owner maintains

ownership and control of its digital commodities and cryptographic private “keys” at all times.

Alternatively, Owners can participate in the PoS Network validation process without

running their own nodes by using self-custodial staking directly with a third party. Owners grant

their validation rights to a third-party Node Operator. 112 When using a third-party Node

Operator, the Owner receives a portion of the rewards, with the Node Operator also earning a

portion of the rewards for its services in validating transactions. When self-custodial staking

directly with a third party, the Owner retains ownership and control of its digital commodities

and its private keys.

In addition to self (or solo) staking and self-custodial staking directly with a third party, a

third form of Protocol Staking is “custodial” staking, in which a third party (a “Custodian”) takes

custody of an Owner’s digital commodities and facilitates staking them on behalf of the Owner.

When Owners (in this context, “Depositors”) deposit their digital commodities with a Custodian,

112

On certain PoS Networks, Owners can stake their digital commodities and receive validation rights that they

can grant to a third party, thereby allowing the third party to use the staked digital commodities to verify

transactions on the PoS Network on behalf of the Owners. For example, some PoS Networks may facilitate this

by allowing an Owner to “delegate” its validation rights to a Node Operator. In this case, the Node Operator

acts as a “Delegate” in the staking process. Other PoS Networks may use “Nominators” to whom an Owner

may grant its validation rights to act on the Owner’s behalf in selecting Validators.

the Custodian holds the deposited digital commodities in a cryptographic wallet that the

Custodian controls. The Custodian stakes the digital commodities on the Depositor’s behalf for

an agreed-upon portion of any rewards, either using a node the Custodian operates or through a

third-party Node Operator the Custodian selects. At all times during the staking process, the

deposited digital commodities remain in the control of the Custodian, and the Depositor is

intended to retain ownership of the digital commodities held by the Custodian. 113 Further, the

deposited digital commodities: (1) are not used by the Custodian for operational or general

business purposes; (2) are not lent, pledged, or rehypothecated for any reason; and (3) are held in

a manner designed not to subject them to claims by third parties. To this end, the Custodian may

not use the deposited digital commodities to engage in leverage, trading, speculation, or

discretionary activities.

A fourth type of Protocol Staking is “Liquid Staking,” whereby Depositors receive newly

generated crypto assets (“Staking Receipt Tokens”) that evidence Depositors’ ownership of the

deposited digital commodities and any rewards that accrue to the deposited digital

commodities. 114 As part of Liquid Staking, Staking Receipt Tokens are issued to Depositors on a

one-for-one basis to the amount of the deposited digital commodities. 115 Staking Receipt Tokens

enable their holders to maintain liquidity without having to withdraw the deposited digital

commodities from staking. For example, holders can use Staking Receipt Tokens as collateral or

to participate in crypto applications, including those that can provide a return to the holder,

113

The Custodian typically enters into an agreement with the Depositor, such as a user agreement or terms of

service, providing that the Depositor retains ownership of the digital commodities.

114

As discussed below, slashing losses are deducted from the staked digital commodities.

115

While issued on a one-for-one basis, the Staking Receipt Token that is issued may not be a whole unit because

at the time of deposit one whole unit of the deposited digital commodity may represent a fraction of one whole

unit of the Staking Receipt Token.

although any such transactions are separate and independent of the Protocol Staking activities.

Staking Receipt Tokens do not change any of the rights or obligations of the deposited digital

commodities and are characterized as receipts for the deposited digital commodities. Depositors

can redeem the Staking Receipt Tokens for the deposited digital commodities and any rewards

that accrue to the deposited digital commodities, 116 subject to any applicable unbonding

period. 117

Persons can participate in Liquid Staking through protocol-based or third-party service

providers (both referred to in this release as “Liquid Staking Providers”). The Liquid Staking

Provider facilitates the staking of the deposited digital commodities on behalf of the Depositor.

The Liquid Staking Provider holds the deposited digital commodities either in a cryptographic

wallet that the Liquid Staking Provider controls or in a smart contract. The Liquid Staking

Provider stakes the deposited digital commodities on behalf of the Depositor for an agreed-upon

fee that reduces the amount of rewards that would otherwise accrue to the deposited digital

commodities, either using a node the Liquid Staking Provider operates or through a third-party

Node Operator the Liquid Staking Provider selects. 118 In the latter case, this selection is the

Liquid Staking Provider’s only decision in the staking process, and that decision may be

automated. At all times during this Liquid Staking arrangement, the deposited digital

commodities remain in the control of the Liquid Staking Provider and the Depositor (or any

116

When redeemed, the Staking Receipt Tokens are “burned,” which is a process through which the Staking

Receipt Tokens are permanently removed from circulation.

117

See supra note 110 for an explanation of “unbonding period.”

118

The amount of rewards that otherwise would accrue to the deposited digital commodities also would be reduced

by any fees owed to a third-party Node Operator.

subsequent transferee of the Depositor’s Staking Receipt Tokens) is intended to retain ownership

of the deposited digital commodities. 119

When using a protocol-based Liquid Staking Provider, Depositors deposit their digital

commodities into a software protocol that holds the deposited digital commodities in a smart

contract on behalf of the Depositors, stakes the deposited digital commodities on behalf of the

Depositors, and issues Staking Receipt Tokens to the Depositors, all in a programmatic manner

through self-executing computer code. The generating, issuing, and redeeming of the Staking

Receipt Tokens is performed without the need for or reliance on a third-party intermediary.

When using a third-party Liquid Staking Provider, such as a Custodian, Depositors

deposit their digital commodities with the third-party Liquid Staking Provider, who holds the

deposited digital commodities in a cryptographic wallet on behalf of the Depositors, stakes the

deposited digital commodities on behalf of the Depositors, and issues Staking Receipt Tokens to

the Depositors. The generating, issuing, and redeeming of the Staking Receipt Tokens is

performed by the third-party Liquid Staking Provider.

In a Liquid Staking arrangement, rewards accrue to, and slashing 120 losses are deducted

from, the staked digital commodities. Rewards are deposited with the Liquid Staking Provider,

and staked digital commodities are forfeited if there are slashing losses, in either case in a

programmatic manner through self-executing computer code. There are two methods through

which Staking Receipt Tokens reflect rewards and/or slashing losses. In the first method, the

Staking Receipt Token itself evidences ownership of more digital commodities as and when

rewards accrue and fewer digital commodities as and when slashing losses occur. This means

119

The Liquid Staking Provider typically enters into an agreement with the Depositor, such as a user agreement or

120

See supra note 111 for an explanation of “slashing.”

that the ratio of one Staking Receipt Token to one digital commodity changes as rewards accrue

and/or slashing losses occur. For example, as rewards accrue the ratio changes from one-to-one

to one-to-more-than-one, with one Staking Receipt Token representing more than one digital

commodity. In the second method, Staking Receipt Token holders receive additional Staking

Receipt Tokens as and when rewards accrue and lose Staking Receipt Tokens as and when

slashing losses occur. This means that the ratio of Staking Receipt Tokens to digital commodities

always remains one-to-one. In either case, the Staking Receipt Tokens can be redeemed with the

Liquid Staking Provider at any time for the deposited digital commodities, subject to any

applicable unbonding period.

Covered Protocol Staking Activities

The interpretation below pertains to the following Protocol Staking activities when such

activities conform to the descriptions in this release (“Protocol Staking Activities” and each a

“Protocol Staking Activity”): (1) staking digital commodities on a PoS Network; (2) the

activities undertaken by third parties involved in the Protocol Staking process—including, but

not limited to, third-party Node Operators, Validators, Custodians, Delegates, Nominators, and

Liquid Staking Providers (collectively, “Service Providers”)—including their roles in connection

with the earning and distribution of rewards; (3) the activities undertaken by Liquid Staking

Providers in connection with generating, issuing, and redeeming Staking Receipt Tokens; and (4)

providing Ancillary Services (as defined below). Only Protocol Staking Activities undertaken in

connection with the following types of Protocol Staking are addressed in this release:

Self (or Solo) Staking, which involves a Node Operator staking digital commodities it

owns and controls using its own resources. The Node Operator may include one or more persons

acting together to operate a node and stake their digital commodities.

Self-Custodial Staking Directly with a Third Party, which involves a Node Operator,

under the terms of the PoS Network’s protocol, being granted Owners’ validation rights. Reward

payments may flow from the PoS Network directly to the Owners or indirectly to them through

the Node Operator.

Custodial Arrangement, which involves a Custodian staking on behalf of Depositors. For

example, a crypto asset trading platform holding deposited digital commodities may stake such

digital commodities on behalf of Depositors on a PoS Network that permits delegation on behalf

of and with the consent of the Depositors. The Custodian will stake the deposited digital

commodities using its own node or select a third-party Node Operator. In the latter case, this

selection is the Custodian’s only decision in the staking process.

Liquid Staking, which involves a Liquid Staking Provider staking on behalf of Depositors

who receive a Staking Receipt Token that evidences their ownership of the deposited digital

commodities and any rewards that accrue to the deposited digital commodities. The Liquid

Staking Provider will stake the deposited digital commodities using its own node or select a

third-party Node Operator. In the latter case, this selection is the Liquid Staking Provider’s only

decision in the Liquid Staking process.

Interpretation Regarding Protocol Staking Activities

Protocol Staking Activities, in the manner and under the circumstances described in this

release, do not involve the offer and sale of a security within the meaning of section 2(a)(1) of

the Securities Act or section 3(a)(10) of the Exchange Act. Accordingly, participants in Protocol

Staking Activities do not need to register transactions with the Commission under the Securities

Act or fall within an exemption from registration in connection with these Protocol Staking

Activities.

As noted above, 121 a digital commodity itself does not constitute any of the financial

instruments enumerated in the definition of “security.” Accordingly, we conduct our analysis of

certain transactions involving digital commodities in the context of Protocol Staking under the

Howey test. 122

Self (or Solo) Staking. A Node Operator’s self (or solo) staking is not undertaken with a

reasonable expectation of profits to be derived from the essential managerial efforts of others.

Rather, Node Operators contribute their own resources and stake their own digital commodities,

thereby helping to secure the PoS Network and facilitating the PoS Network’s operation through

the validation of new blocks, which enables them to qualify for rewards issued by the PoS

Network in accordance with its underlying software protocol. To earn rewards, the Node

Operator’s activities must comply with the rules of the PoS Network’s software protocol. By

staking its own digital commodities and engaging in Protocol Staking, the Node Operator is

merely engaging in an administrative or ministerial activity to secure the PoS Network and

facilitate its operation. A Node Operator’s expectation to receive rewards is not derived from any

third party’s essential managerial efforts upon which the PoS Network’s success depends.

Instead, the expected financial incentive from the PoS Network’s software protocol is derived

solely from the administrative or ministerial act of Protocol Staking. As such, rewards are

payments to the Node Operator in exchange for the services it provides to the PoS Network

rather than profits derived from the essential managerial efforts of others.

121

See supra section III.A.

122

Protocol Staking generally and the “Protocol Staking Activities” defined in this release and upon which we

express our view in this release do not involve notes or other evidences of indebtedness because at all times

during the staking process the Owner or Depositor retains ownership of its digital commodities (either directly

or through a Custodian or Liquid Staking Provider).

Self-Custodial Staking Directly with a Third Party. Likewise, where an Owner grants its

validation rights to a Node Operator, the Owner has no expectation of profit derived from the

essential managerial efforts of others. The Node Operator’s service to the Owner is

administrative or ministerial in nature and does not constitute essential managerial efforts for the

reasons discussed above with respect to self (or solo) staking. Whether a Node Operator stakes

its own digital commodities or is granted validation rights from Owners does not alter the nature

of Protocol Staking for purposes of the Howey test. In either case, Protocol Staking remains an

administrative or ministerial activity, and the expected financial incentive is derived solely from

such activity and not the success of the PoS Network or some other third party. Further, the Node

Operator does not guarantee or otherwise set or fix the amount of the rewards owed to Owners,

although the Node Operator may subtract from such amount its fees (whether fixed or a

percentage of such amount).

Custodial Arrangement. In a custodial arrangement, the Custodian (whether a Node

Operator or not) does not provide essential managerial efforts to Depositors for whom it provides

this service. These arrangements are like those discussed above where an Owner grants its

validation rights to a third party but, in this instance, they also involve the Owner granting

custody of its deposited digital commodities. The Custodian does not decide whether, when, or

how much of a Depositor’s digital commodities to stake. The Custodian acts as an agent in

connection with staking the deposited digital commodities on behalf of the Depositor. 123 In

addition, the Custodian’s taking custody of the deposited digital commodities and in some cases

selecting a Node Operator do not constitute essential managerial efforts because these activities

123

If a Custodian does select whether, when, or how much of a Depositor’s digital commodities to stake, its

activities are outside the scope of this release.

are administrative or ministerial in nature. Further, the Custodian does not guarantee or otherwise

set or fix the amount of the rewards owed to Depositors, although the Custodian may subtract

from such amount its fees (whether fixed or a percentage of such amount). 124

Liquid Staking. In Liquid Staking, the Liquid Staking Provider (whether a Node Operator

or not) does not provide essential managerial efforts to Depositors for whom it provides this

service. These arrangements are like those discussed above with respect to a “Custodial

Arrangement.” The Liquid Staking Provider does not decide whether, when, or how much of a

Depositor’s digital commodities to stake and is acting as an agent in connection with staking the

digital commodities on behalf of the Depositor. 125 In addition, the Liquid Staking Provider’s

taking custody of the deposited digital commodities and in some cases selecting a Node Operator

does not constitute essential managerial efforts because these activities are administrative or

ministerial in nature. Further, the Liquid Staking Provider does not guarantee or otherwise set the

amount of the rewards owed to Depositors, although the Liquid Staking Provider may subtract

from such amount its fees (whether fixed or a percentage of such amount). 126

Ancillary Services. Service Providers may provide the services described below

(“Ancillary Services”) to Owners and Depositors in connection with Protocol Staking. Each of

these Ancillary Services is merely administrative or ministerial in nature and does not involve

essential managerial efforts. They are facets of a general activity—Protocol Staking—that itself

does not constitute essential managerial efforts. Whether offered separately or as a group of

124

If a Custodian does guarantee or otherwise set the amount of rewards owed to the Depositors, its activities are

outside the scope of this release.

125

If a Liquid Staking Provider does select whether, when, or how much of a Depositor’s digital commodities to

stake, its activities are outside the scope of this release.

126

If a Liquid Staking Provider does guarantee or otherwise set the amount of rewards owed to the Depositors, its

activities are outside the scope of this release.

services, the Service Provider does not provide essential managerial efforts if it provides any or

all of these services. 127

Slashing Coverage, where the Service Provider reimburses or indemnifies a staking

customer against loss resulting from slashing. This protection is similar to that offered by service

providers in many types of traditional commercial transactions.

Early Unbonding, where a Service Provider allows digital commodities to be returned to

an Owner or Depositor before the end of the applicable unbonding period of a PoS Network’s

software protocol. This service merely shortens the applicable unbonding period as a

convenience to the Owner or Depositor by reducing the burden of the unbonding period.

Alternate Rewards Payment Schedules and Amounts, where the Service Provider delivers

earned rewards at a cadence and in an amount that differs from the set schedule of a PoS

Network’s software protocol and/or where the rewards are paid earlier or less frequently than a

PoS Network’s software protocol distributes them, provided the reward amounts are not fixed,

guaranteed, or greater than those awarded by the PoS Network’s software protocol. Similar to

early unbonding, this is merely an optional convenience afforded to Owners and Depositors in

connection with the administration of rewards allocation and delivery.

Aggregation of Digital Commodities, where the Service Provider offers the ability for

Owners or Depositors to aggregate their digital commodities to meet any applicable staking

minimum of a PoS Network’s software protocol. This service is part of the validation process,

which itself is administrative or ministerial in nature. Without more, aggregating the digital

127

To the extent that Service Providers provide services not discussed below, their activities are outside the scope

of this release.

commodities of Owners or Depositors to help enable staking is similarly administrative or

ministerial in nature.

Interpretation Regarding Staking Receipt Tokens

The offer and sale of a Staking Receipt Token that is a receipt for a non-security crypto

asset that is not subject to an investment contract, in the manner and under the circumstances

described in this release, does not involve the offer and sale of a security within the meaning of

section 2(a)(1) of the Securities Act or section 3(a)(10) of the Exchange Act. Accordingly,

persons involved in the process of generating, issuing, and redeeming a Staking Receipt Token

that is a receipt for a non-security crypto asset that is not subject to an investment contract, in the

manner and under the circumstances described in this release, as well as persons involved in

secondary market offers and sales of such Staking Receipt Tokens, do not need to register those

transactions with the Commission under the Securities Act or fall within an exemption from

registration. In contrast, the offer or sale of a Staking Receipt Token that is a receipt for a digital

security or a non-security crypto asset that is subject to an investment contract is an offer or sale

of a security within the meaning of section 2(a)(1) of the Securities Act or section 3(a)(10) of the

Exchange Act.

A Staking Receipt Token that is a receipt for a non-security crypto asset that is not subject

to an investment contract does not constitute any of the common financial instruments

enumerated in the definition of “security” because, among other things, it does not have the

economic characteristics of a security. While Depositors are entitled to rewards accruing with

respect to their deposited digital commodity, such a Staking Receipt Token itself does not

generate rewards. Rather, rewards are generated from the underlying Protocol Staking Activities,

which (as discussed above) do not involve securities transactions. Further, such a Staking

Receipt Token does not constitute any of the derivative financial instruments enumerated in the

definition of “security.” 128 Thus, such a Staking Receipt Token merely evidences the deposited

digital commodity held with the Liquid Staking Provider to which the Depositor is entitled as the

Owner. The definition of “security” specifically includes “receipt for” any security. 129 A Staking

Receipt Token is a receipt, which is an instrument certifying that a stated amount of a digital

commodity has been deposited with the Liquid Staking Provider issuing the receipt, because it

evidences the holder’s ownership of the deposited digital commodity.130 Accordingly, a Staking

Receipt Token that is a receipt for a non-security crypto asset that is not subject to an investment

contract is not a receipt for a security. In contrast, a Staking Receipt Token that is a receipt for a

digital security or non-security crypto asset that is subject to an investment contract is a security.

Consideration also must be given to whether a Staking Receipt Token that is a receipt for

a non-security crypto asset that is not subject to an investment contract itself may be offered and

sold subject to an investment contract. Such a Staking Receipt Token is not offered and sold

subject to an investment contract because the parties involved in the process of generating,

issuing, and redeeming such a Staking Receipt Token do not provide essential managerial efforts

to holders of such a Staked Receipt Token and any economic benefits realized by holders of such

128

Such a Staking Receipt Token does not constitute: (i) a “put, call, straddle, option, or privilege on any security”

because it does not have a premium (i.e., there is no price paid for the right to buy or sell an underlying asset),

have optionality (i.e., there is no ability to choose whether or not to purchase or sell the underlying asset), or

transfer risk between the parties; (ii) a “security future” because it is not a contract of sale for future delivery of

an asset; or (iii) a “security-based swap” because, among other reasons, it provides the holder with a beneficial

ownership interest in the deposited digital commodity.

129

While the financial instruments enumerated in the definition of “security” also include “certificate of deposit for

a security,” that term generally has been interpreted to refer to instruments issued by protective committees

during corporate reorganizations. See Marine Bank, 455 U.S. at 557 n.5.

130

See supra note 119.

a Staking Receipt Token are not derived from any such efforts. 131 That is, the value of such a

Staking Receipt Token is derived from the value of the deposited digital commodity and not from

the essential managerial efforts of the Liquid Staking Provider or any other third party involved

in the process of generating, issuing, and redeeming such a Staking Receipt Token. Moreover,

any rewards accruing with respect to the deposited digital commodity are realized from Protocol

Staking Activities that, as discussed above, do not involve the offer and sale of a security within

the meaning of section 2(a)(1) of the Securities Act or section 3(a)(10) of the Exchange Act.

VI.

FEDERAL SECURITIES LAWS STATUS OF THE CRYPTO ASSET ACTIVITY

KNOWN AS “WRAPPING”

In the following discussion, we provide an interpretation regarding the “wrapping” of

crypto assets. The “wrapping” of crypto assets refer to the process through which a person

deposits a crypto asset with a Custodian or cross-chain bridge 132 (the “Wrapped Token

Provider”) and in return the Wrapped Token Provider generates an equivalent amount of

“Redeemable Wrapped Tokens” 133 on a one-for-one basis without directly or indirectly offering

any return, yield, profit opportunity, or additional good or service. The Wrapped Token Provider

holds the deposited crypto asset in a manner intended to ensure that, for the Redeemable

Wrapped Tokens in circulation, there is an equivalent amount of the deposited crypto asset being

131

A holder of such a Staking Receipt Token may be able to use the Staking Receipt Token to generate additional

returns. Where a Liquid Staking Provider provides the means by which such a Staking Receipt Token can be

used to generate such returns, those activities are outside the scope of this release.

132

A “cross-chain bridge” programmatically generates and redeems Redeemable Wrapped Tokens (defined below)

without the use of a Custodian. A cross-chain bridge consists of self-executing code that uses smart contracts to

facilitate the interoperability between different crypto networks and token standards.

133

For purposes of this release, a “Redeemable Wrapped Token” is a crypto asset issued on a crypto network that

represents either a crypto asset native to a different crypto network or a crypto asset based on a different token

standard and that both (1) is backed one-for-one by the deposited crypto asset, and (2) can be redeemed on a

fixed one-for-one basis for the deposited crypto asset, in which case the Redeemable Wrapped Token is burned

(or destroyed) and thereby permanently removed from circulation.

held. 134 The Wrapped Token Provider holds the deposited crypto asset for the benefit of the

Redeemable Wrapped Token holders and the deposited crypto asset effectively is “locked up”

and cannot be transferred, lent, pledged, rehypothecated, or otherwise used for any reason. The

holder of a Redeemable Wrapped Token—whether the original depositor of the crypto asset or a

subsequent transferee—has the right to redeem the Redeemable Wrapped Token for the

deposited crypto asset on a one-for-one basis. To redeem, the Redeemable Wrapped Token holder

reverses the process described above: the holder sends the Redeemable Wrapped Tokens back to

the Wrapped Token Provider, who burns (or destroys) the Redeemable Wrapped Tokens and

releases the equivalent amount of the deposited crypto asset back to the holder on a one-for-one

basis.

The offer or sale of a Redeemable Wrapped Token that is a receipt for a non-security

crypto asset that is not subject to an investment contract, in the manner and under the

circumstances described in this release, does not involve the offer and sale of a security within

the meaning of section 2(a)(1) of the Securities Act or section 3(a)(10) of the Exchange Act.

Accordingly, persons who participate in the offer or sale of a Redeemable Wrapped Token that is

a receipt for a non-security crypto asset that is not subject to an investment contract, in the

manner and under the circumstances described in this release, do not need to register their

transactions with the Commission under the Securities Act or fall within an exemption from

registration. In contrast, the offer or sale of a Redeemable Wrapped Token that is a receipt for a

digital security or a non-security crypto asset that is subject to an investment contract is an offer

134

A Custodian typically holds the deposited crypto assets in a cryptographic wallet that the Custodian controls. A

cross-chain bridge holds the deposited crypto assets in a smart contract.

or sale of a security within the meaning of section 2(a)(1) of the Securities Act or section

3(a)(10) of the Exchange Act.

A Redeemable Wrapped Token that is a receipt for a non-security crypto asset that is not

subject to an investment contract does not constitute any of the common financial instruments

enumerated in the definition of “security” because, among other things, it does not have the

economic characteristics of a security. Further, such a Redeemable Wrapped Token does not

constitute any of the derivative financial instruments enumerated in the definition of

“security.” 135 Thus, such a Redeemable Wrapped Token merely evidences the deposited crypto

asset held with the Wrapped Token Provider to which the Redeemable Wrapped Token holder is

entitled. The definition of “security” specifically lists “receipt for” any security. A Redeemable

Wrapped Token is a receipt, which is an instrument certifying that a stated amount of a crypto

asset has been deposited with the Wrapped Token Provider issuing the receipt, because it

evidences the holder’s ownership of the deposited crypto asset and does not change any of the

rights, obligations, or benefits of the deposited crypto asset. 136 Accordingly, a Redeemable

Wrapped Token that is a receipt for a non-security crypto asset that is not subject to an

investment contract is not a receipt for a security. In contrast, a Redeemable Wrapped Token that

is a receipt for a digital security or non-security crypto asset that is subject to an investment

contract is a security.

135

Such a Redeemable Wrapped Token does not constitute: (i) a “put, call, straddle, option, or privilege on any

security” because it does not have a premium (i.e., there is no price paid for the right to buy or sell an asset),

have optionality (i.e., there is no ability to choose whether or not to purchase or sell an asset), or transfer risk

between the parties; (ii) a “security future” because it is not a contract of sale for future delivery of an asset; or

(iii) a “security-based swap” because, among other reasons, it provides the holder with a beneficial ownership

interest in the deposited crypto assets.

136

The Wrapped Token Provider typically issues Redeemable Wrapped Tokens together with a user agreement or

Consideration also must be given to whether a Redeemable Wrapped Token that is a

receipt for a non-security crypto asset that is not subject to an investment contract itself may be

offered and sold subject to an investment contract. The offer and sale of such a Redeemable

Wrapped Token do not involve an investment in an enterprise and the parties involved in the

wrapping process do not provide essential managerial efforts upon which any return would be

derived. First, holders of such a Redeemable Wrapped Token are not making an investment in an

enterprise. That is, their funds are neither pooled together to be deployed by promoters or other

third parties for developing any enterprise, nor are their fortunes tied to the efforts of a promoter

or other third party or shared with those of a promoter or other third party. As noted above, the

Wrapped Token Provider holds the deposited crypto asset for the benefit of holders of such a

Redeemable Wrapped Token, and the deposited crypto asset is locked up and cannot be

transferred or otherwise used. Second, any economic benefits realized by holders of such a

Redeemable Wrapped Token are not derived from the essential managerial efforts of others. That

is, the value of such a Redeemable Wrapped Token is derived from the value of the deposited

crypto asset and not from the efforts of any third party involved in the wrapping process. The

wrapping process itself is an administrative or ministerial function typically used to facilitate or

enhance the interoperability between different crypto networks and different token standards 137

by allowing a crypto asset to be represented and used in a crypto system with which it is not

otherwise compatible. 138 In addition, there is no financial incentive derived from the wrapping

137

A token standard comprises the specifications governing how a crypto asset functions in a crypto system. Such

specifications address a wide range of functions including how the crypto asset is transferred, how transactions

are approved, and how data is accessed.

138

Crypto networks have different protocols and may not be interoperable, meaning that crypto assets originating

from one crypto network may not be compatible with other crypto networks such that the crypto assets may not

be able to be transferred to or otherwise used on such other crypto networks. A crypto asset also may not be able

to be used in a crypto application if it is based on a token standard that is not compatible with the token

standard(s) required for use in the crypto application.

process because a Redeemable Wrapped Token is redeemable for the deposited crypto asset only

on a fixed, one-for-one basis without any additional financial incentive or benefit. Moreover, the

activities of the parties involved in the wrapping process, including those of Wrapped Token

Providers, are administrative or ministerial in nature and do not constitute essential managerial

efforts.

VII.

APPLICATION OF THE HOWEY TEST TO CERTAIN CRYPTO ASSET

DISSEMINATIONS KNOWN AS “AIRDROPS”

In the following discussion, we provide an interpretation regarding the investment

contract status of certain crypto asset disseminations known as “airdrops” for purposes of

Section 2(a)(1) of the Securities Act. As discussed below, this interpretation addresses only

airdrops 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 non-security

crypto assets.

Airdrops Generally

An “airdrop” is a means for crypto asset issuers to disseminate their crypto assets in

exchange for no or nominal consideration. The issuer, usually in the early stages of development

of a crypto system, effectuates an airdrop by transferring its crypto asset to specific

cryptographic wallets or other addresses. Issuers use airdrops for a variety of reasons, such as to

generate interest in and expand ownership and use of their crypto assets, reward early users or

loyalty of users of a crypto system, promote a software application, build a community,

decentralize governance authority with respect to an open-source crypto system, or award highscoring players of an associated video game. An increase in the ownership base of a crypto asset

can help grow and increase participation in the associated crypto system by more users, support

decentralization of the crypto system, and facilitate network effects.

Issuers choose the recipients and all other terms of their airdrops. For example, an issuer

could airdrop its crypto asset only to cryptographic wallets holding another specified crypto

asset, with or without minimum ownership thresholds of that other crypto asset, or to

cryptographic wallets of users of a particular trading platform that facilitates participation in the

airdrop. Or an issuer may airdrop its crypto asset to selected crypto system users who meet

specific criteria, such as holding a minimum amount of the crypto asset or based on their prior or

current level of activity with the associated crypto system. Further, an issuer may airdrop its

crypto asset in exchange for the recipient providing a service. That service could include, for

example, a task aimed at raising awareness of the issuer’s crypto asset and associated crypto

system through various channels, such as following the issuer on social media, “retweeting” (or

reposting) a post sent by the issuer, writing an article about the associated crypto system,

referring another person to the associated crypto system, or fixing bugs in the associated crypto

system’s software.

Covered Airdrops

The interpretation below pertains to airdrops of non-security crypto assets to recipients

who do not provide the issuer with money, goods, services, or other consideration in exchange

for the airdropped non-security crypto asset. 139 The interpretation does not pertain to any

airdrops of non-security crypto assets where the recipient provides the issuer with money, goods,

services, or other consideration in exchange for the airdropped non-security crypto asset, such as

139

The non-security crypto assets disseminated in an airdrop may or may not be allocated to recipients on a pro

rata basis.

where the recipient performs a service in exchange for the airdropped non-security crypto asset.

The interpretation does, however, pertain to airdrops of non-security crypto assets in which the

recipients have provided to the issuer money, goods, services, or other consideration where the

consideration was not provided to the issuer in exchange for the airdropped non-security crypto

assets. In other words, the recipient must not bargain for or choose to provide such consideration

in exchange for the airdropped non-security crypto asset for the interpretation to apply. For

example, where such consideration was provided to the issuer prior to the announcement 140 of

the airdrop and the recipients are not required to provide any further consideration to the issuer

after such announcement in order to obtain the airdropped non-security crypto asset, we would

not view such consideration as being provided to the issuer in exchange for the airdropped nonsecurity crypto asset. 141

Interpretation Regarding Airdrops 142

Where an issuer conducts an airdrop of non-security crypto assets in the manner and

under the circumstances described in this release, the non-security crypto asset does not become

subject to an investment contract because the first element of the Howey test—requiring an

140

This view does not foreclose general statements regarding the possibility of an airdrop so long as any such

statements do not provide terms or conditions.

141

If recipients would have to fulfill further conditions subsequent to the announcement of the airdrop, such as

buying a specific crypto asset, buying a good or service (whether or not related to a crypto asset), or performing

a specific task (whether or not related to a crypto asset), the interpretation would not pertain to such airdrop.

142

The interpretation does not apply to or otherwise affect existing Commission or staff positions regarding

employee compensation and benefit arrangements involving the issuance or award of securities.

investment of money 143—is not met. 144 Recipients of the airdropped non-security crypto asset

are not making an “investment of money” because they provide no money, goods, services, or

other consideration to the issuer in exchange for the airdropped non-security crypto asset, and the

issuer is not offering them the non-security crypto asset in exchange for any such

consideration. 145 Accordingly, issuers conducting airdrops of non-security crypto assets in the

manner and under the circumstances described in this release do not need to register those

transactions with the Commission under the Securities Act or fall within one of the Securities

Act’s exemptions from registration. 146

This interpretation would include the following scenarios where recipients do not provide

consideration to the issuer in exchange for the airdropped non-security crypto asset:

143

The first element of the Howey test requires recipients to make an “investment of money.” Federal courts have

interpreted “money” for this purpose to not be limited to cash. See, e.g., Uselton v. Comm. Lovelace Motor

Freight, Inc., 940 F.2d 564, 574 (10th Cir. 1991) (stating that “in spite of Howey’s reference to an ‘investment of

money,’ it is well established that cash is not the only form of contribution or investment that will create an

investment contract” and that “the ‘investment’ may take the form of ‘goods and services,’ or some other

‘exchange of value.’”) (citations omitted).

144

The interpretation in this section of the release only relates to the “investment-of-money” requirement of the

Howey test. See supra note 7. The Howey test is a conjunctive test, meaning that if any of its three requirements

is not met there is no “investment contract.” See, e.g., Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir. 1994)

(“The three elements of the Howey test must all be present for a [ ] contract [, transaction, or scheme] to

constitute a security . . . .”).

145

Applicable Federal case law since Howey explains that there is no investment of money where the recipient

does not provide consideration for the acquired asset. See SEC v. Sg Ltd., 265 F.3d 42, 47 (1st Cir. 2001) (“The

determining factor [under the first prong of the Howey test] is whether an investor ‘chose to give up a specific

consideration in return for a separable financial interest with the characteristics of a security.’” (quoting Int’l

Bhd. of Teamsters v. Daniel, 439 U.S. 551, 558 (1979)). “In every case [where courts have found an investment

contract exists] the purchaser gave up some tangible and definable consideration in return for an interest that

had substantially the characteristics of a security.” Int’l Bhd. of Teamsters v. Daniel at 559.

146

Although the non-security crypto asset disseminated in the airdrop may not be subject to an investment contract,

there may be an investment contract associated with the non-security crypto asset created in connection with

other transactions involving the non-security crypto asset, whether prior to or after the airdrop. In such cases,

the non-security crypto asset disseminated in the airdrop may become subject to that investment contract in a

subsequent transaction, which would constitute a securities transaction, such as where the airdrop recipient sells

the non-security crypto asset in a secondary market transaction. Any such transaction would have to be

registered under the Securities Act or conducted pursuant to an available exemption from registration, such as

the exemption in section 4(a)(1) of the Securities Act.

•

An issuer airdrops its non-security crypto asset to persons who hold another specified

crypto asset in their digital wallets, and the issuer does not announce the airdrop

before the non-security crypto asset is disseminated. 147

•

An issuer creates a new crypto system that utilizes a non-security crypto asset. Prior

to deploying the crypto system, the issuer deploys a testing environment version of

the crypto system and interested users transact using such version during that phase of

the crypto system’s development. After the crypto system is fully functional and

operational, the issuer announces that persons who used the testing environment

version during a specific prior period would receive the non-security crypto asset in

an airdrop for that prior engagement. 148

•

An issuer airdrops its non-security crypto asset free of charge to users of a related

software application who satisfy certain eligibility criteria based upon such users’ use

of the application. Airdrop eligibility is solely based on the users’ use of the

application prior to the date of the airdrop, and the issuer does not announce the

airdrop before the non-security crypto asset is disseminated.

This interpretation does not address airdrops of digital securities. This interpretation also

does not address or otherwise alter our views of what does or does not constitute a “sale” under

section 2(a)(3) of the Securities Act, which includes “every contract of sale or disposition of a

security or interest in a security, for value,” or section 3(a)(14) of the Exchange Act. Section

147

The result here would be the same regardless of whether the issuer conducting the airdrop itself is the issuer of

the other specified crypto asset and regardless of whether the other specified crypto asset itself is a security.

148

If, however, the issuer announced the airdrop during the testing environment version phase to incentivize

engagement during that phase of the crypto system’s development and limited the airdrop to persons who use

the testing environment version, then the interpretation would not pertain to such airdrop.

2(a)(3) of the Securities Act and section 3(a)(14) of the Exchange Act by their terms do not apply

to airdrops of non-security crypto assets that are not subject to an investment contract.

VIII. OTHER MATTERS

Pursuant to the Congressional Review Act, 149 the Office of Management and Budget

(“OMB”) has designated the interpretation in this release as a “major rule,” as defined by 5

U.S.C. 804(2). Notwithstanding such designation, the interpretation in this release may take

effect immediately pursuant to 5 U.S.C. 808(2) because it is an interpretive rule and thus exempt

from the Administrative Procedure Act’s notice and comment requirements. The interpretation in

this release is a significant regulatory action under section 3(f) of Executive Order 12866, as

amended, and has been reviewed by OMB. The interpretation in this release concerns the Federal

securities laws and the guidance included herein concerns the administration of the Commodity

Exchange Act by the CFTC. No interference is intended with respect to any other legal regime,

including the Federal tax laws under the Internal Revenue Code or the Bank Secrecy Act of 1970

and the Anti-Money Laundering Act of 2020, which are outside the scope of the interpretation in

this release.

IX.

COMMISSION ECONOMIC CONSIDERATIONS

The interpretation in this release is intended to advise the public on the Commission’s

views of the application of the Federal securities laws to certain types of crypto assets and certain

transactions in crypto assets. The interpretation does not itself create any new legal obligations

for issuers of, and investors in, digital securities and crypto asset-related securities (i.e., when a

crypto asset is subject to an investment contract). Nonetheless, we recognize that, to the extent

the understanding and behavior of issuers and investors are currently not consistent with the

149

5 U.S.C. 801 et seq.

interpretation, the interpretation would have economic effects. We discuss the potential economic

effects of the interpretation below, including the potential for improvements in efficiency, capital

formation, and competition.

The interpretation may affect issuers of and investors in digital securities and crypto

asset-related securities; creators and acquirers of non-security crypto assets; users of crypto

systems; and financial intermediaries. The main effect of the interpretation will be to reduce

uncertainty by finally providing clarity about the Commission’s views on the application of the

Federal securities laws to certain types of crypto assets and certain transactions in crypto assets.

The impact of this clarification, however, is limited in certain respects. First, given the passage of

the GENIUS Act, affected parties are already on notice that payment stablecoins issued by a

permitted payment stablecoin issuer will be excluded from the statutory definition of “security”

after the effective date of the GENIUS Act. Second, to the extent that affected parties are already

acting consistently with the interpretation, the interpretation will have minimal economic impact.

By providing more clarity, the interpretation should reduce costs for issuers of digital

securities and crypto asset-related securities, as well as other market participants and creators of

non-security crypto assets by reducing the cost of legal advice to determine their obligations

consistent with the Commission’s views on the application of the Federal securities laws to

crypto assets and transactions involving crypto assets. A reduction in costs could result in more

issuers issuing, offering, and selling crypto assets securities and crypto asset-related securities.

These effects could spur competition in the market for these securities and lead to increased

entrepreneurship and innovation in this market, to the benefit of investors. The added clarity and

associated reduction in costs from the interpretation could also spur more activity in the markets

for non-security crypto assets, thus increasing competition among creators and among buyers. As

a result of these effects, the additional clarity that the interpretation provides could accelerate

growth and innovation in blockchain or similar distributed ledger technology.

Further, to the extent that confusion about the Commission’s views on the application of

the Federal securities laws to certain crypto assets and certain transactions involving crypto

assets has chilled activity in the crypto asset markets or encouraged crypto asset activity to shift

outside of the United States, added clarity from the interpretation could reduce the perceived risk

of engaging in the crypto asset markets and encourage more crypto asset activity in the United

States.

It is possible that some issuers of digital securities and crypto asset-related securities may

determine that they must change business practices as a result of the interpretation. To the extent

that their past understandings and behavior were not consistent with the interpretation, they may

incur costs of changing their practices, including potentially with respect to registration and

exemption from registration of securities offerings under the Federal securities laws. Other

potential issuers of digital securities or crypto asset-related securities may choose either to not

undertake future issuances or to alter the form of their crypto asset issuances.

We also expect the interpretation to have some effects on current and potential investors

in digital securities and crypto asset-related securities and acquirers of non-security crypto assets.

Such investors and acquirers may change their investment behavior if their prior understanding

of the application of the Federal securities laws to certain types of crypto assets or certain

transactions in crypto assets differs from the interpretation. For instance, some individuals and

entities may prefer to hold digital securities or crypto asset-related securities. Because the

interpretation provides further clarification about when the Commission believes a crypto asset is

itself a security or is subject to an investment contract, it should help inform these investors’

investment choices. In addition, clarifying the Commission’s views on the application of the

Federal securities laws to crypto assets and transactions involving crypto assets could lessen any

related uncertainty-driven distortions that may have affected prices for digital securities and

crypto asset-related securities, as well as non-security crypto assets, thereby enhancing pricing

efficiency.

In sum, we expect the interpretation to enhance clarity for issuers and investors regarding

the Commission’s views on the application of the Federal securities laws to certain crypto assets

and certain crypto asset transactions. For the reasons discussed above, this could: enhance

pricing efficiency in digital securities, crypto asset-related securities, and non-security crypto

assets; increase capital formation; and improve competition, which could facilitate innovation

and entrepreneurship in the markets for crypto assets.

Statutory Authority

The interpretation in this release is being adopted pursuant to sections 2(a)(1) and 19 of

the Securities Act and sections 3(a)(10) and 23 of the Exchange Act.

List of Subjects in 17 CFR Parts 231 and 241

Securities.

Text of Amendments

For the reasons set forth above, the Commission is amending title 17, chapter II of the

Code of Federal Regulations as set forth below:

PART 231 – INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT

OF 1933 AND GENERAL RULES AND REGULATIONS THEREUNDER

1. The authority citation for part 231 continues to read as follows:

Authority: 15 U.S.C. 77a et seq.

2. Amend part 231 by adding an entry for Release No. 33-11412 at the end of the table to

read as follows:

*******

Subject

Release No.

Date

Fed. Reg. Vol. and page

*******

Application of the Federal

Securities Laws to Certain Types

of Crypto Assets and Certain

33-11412

Transactions Involving Crypto

Assets

March 17, 2026 91 FR 13714.

PART 241 – INTERPRETATIVE RELEASES RELATING TO THE SECURITIES

EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS

THEREUNDER

3. The authority citation for part 241 continues to read as follows:

Authority: 15 U.S.C. 78a et seq.

4. Amend part 241 by adding an entry for Release No. 34-105020 at the end of the table

to read as follows:

*******

Subject

Release No.

Date

*******

Application of the Federal

Securities Laws to Certain Types

of Crypto Assets and Certain

34-105020

Transactions Involving Crypto

Assets

Fed. Reg. Vol. and page

March 17, 2026 91 FR 13714.

By the Commission.

Dated: March 17, 2026.

Vanessa A. Countryman,

Secretary.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.