WHAT YOU NEED TO KNOW
- The SEC and CFTC issued comprehensive guidance on March 17, 2026, concluding that most cryptocurrencies are not securities.
- Crypto assets that derive their value from network functionality and market demand, rather than the managerial efforts of others, are not securities.
- A non-security crypto asset becomes subject to securities laws when offered as an investment contract, where purchasers invest money in a common enterprise with a reasonable expectation of profits based on the issuer's essential managerial efforts.
- Once purchasers no longer reasonably rely on the issuer's managerial efforts, the investment contract terminates and secondary market transactions are generally not securities transactions. Issuers remain liable, however, for violations occurring during the existence of the investment contract.
On March 17, 2026, the U.S. Securities Exchange Commission (“SEC”) with the U.S. Commodity Futures Trading Commission (“CFTC”), issued comprehensive guidance clarifying the application of federal securities laws to crypto assets. The framework provides the clearest regulatory taxonomy to date and concludes that most cryptocurrencies are not securities, and further detailing instances where a non-security crypto asset might become subject to federal securities laws.
CLASSIFICATION OF CRYPTO ASSETS:
- Digital Commodities: crypto assets that are linked to and derive their value from network functionality and market demand, rather than the managerial efforts of others, are not securities. Identified examples 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).
- Digital Collectibles: crypto assets used for collection or consumptive purposes (for example: artwork, music, videos, trading cards, in-game items, or digital representations or references to internet memes, characters, current events, or trends, among other things) are not securities, unless fractionalized and marketed as investments tied to managerial efforts.
- Digital Tools: crypto assets that perform a practical function (examples: memberships, tickets, credentials, title instruments, or identity badges) or intended for use are not securities. Digital tools are commonly issued for use in connection with crypto systems and are designed to perform practical functions rather than any expectation of profits from any essential managerial efforts of the developer.
- Stablecoins: crypto assets that are designed to maintain a stable value relative to a reference asset like the U.S. dollar are not securities where the issuer commits to redemption at a fixed value. Other stablecoins may or may not be securities subject to facts-and-circumstances analysis of their design.
- Digital Securities: Digital and/or “Tokenized” versions of traditional securities are securities regardless of whether they are issued on or off chain. The release defines digital securities as “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”. The guidance further clarifies that “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.”
INVESTMENT CONTRACT ANALYSIS UNDER HOWEY[1]:
A “non-security crypto asset” (a crypto asset that itself is not a security) becomes subject to securities laws when offered as an investment contract (i.e., when purchasers invest money in a common enterprise with a reasonable expectation of profits based on the issuer’s essential managerial efforts). This analysis turns on issuer-driven representations (not third parties), particularly those made pre-sale or contemporaneously with the sale.
TERMINATION OF AN INVESTMENT CONTRACT:
An asset ceases to be subject to an investment contract once purchasers no longer reasonably rely on the issuer’s managerial efforts—such as when those efforts are completed, abandoned, or fail.
Secondary Market Transactions in such assets are not securities transactions, absent continuing reliance upon the issuer’s representations or promises. Notably, issuers remain liable for violations occurring during the existence of the investment contract, including registration failures and material misstatements or omissions.
TREATMENT OF COMMON CRYPTO ACTIVITIES
The guidance confirms that the following generally do not involve securities transactions:
- Mining: Crypto network validation activities, such as proof-of-work and proof-of-stake activities (including solo and mining pool arrangements) are considered administrative or ministerial activities rather than investments in common enterprises;
- Protocol Staking: All forms of protocol staking (including custodial and liquid staking) and staking receipt tokens are not securities where they merely evidence ownership and rewards. Ancillary services (such as slashing protection, or reward timing) do not alter this analysis;
- Wrapping: The “wrapping” of crypto assets (the process through which crypto assets are deposited with a custodian or a cross-chain bridge) does not constitute a securities offering; and
- Airdrops: certain “airdrops” involving the dissemination 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 asset do not involve securities transactions, because they lack an “investment of money”, a necessary element of Howey. Conversely, airdrops conditioned on services (such as following social media accounts or writing articles) fall outside the safe harbor.
[1] 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.”
If you have any questions about the issues discussed in this article, please contact Partner Hunt S. Ricker or any of the attorneys in Riker Danzig’s Digital Assets and Blockchain Technology practice group.
