Speaking at the Federal Reserve Bank of Philadelphia, SEC Chair Paul S. Atkins outlined a major shift in how the agency may approach digital-asset regulation. He said the SEC’s goal is to bring “basic fairness and common sense” to applying federal securities laws to crypto, while removing uncertainty that has slowed responsible innovation.
The Need for Clarity
Atkins said many developers, intermediaries and investors have been operating “in a fog” without clear SEC guidance. The term crypto asset is not defined in federal securities law, and he argued that this gap has created confusion and inconsistent enforcement.
He emphasised that a token’s technology does not determine whether it is a security. Instead, the key question is whether it was sold as part of an investment contract under the Howey test.
“I believe that most crypto tokens trading today are not themselves securities,” he said, while noting that some may have been sold in ways that did create investment-contract relationships. He stressed that treating a token as a security forever simply because of how it was first sold “is not sustainable or practicable” and may push innovation offshore.
Towards a Token Taxonomy
To address this, Atkins proposed a four-part classification for digital assets:
- Digital commodities or network tokens that are decentralised and functional, which he said should not be considered securities
- Digital collectibles, such as NFTs, which he said typically fall outside securities laws
- Digital tools, such as membership or credential tokens, which generally operate more like access rights than investments
- Tokenised securities, which would remain regulated as securities because they represent ownership of an existing financial instrument maintained on a blockchain
He emphasised that “economic reality trumps labels.” A token marketed as an NFT or utility token may still be a security if buyers expect profits based on someone else’s efforts.
Updating Howey for Modern Markets
Atkins also argued that interpretations of the Howey test have become too rigid. Investment contracts, he said, are relationships that can end. A token should not stay a security simply because it continues to trade on a blockchain.
He echoed Commissioner Hester Peirce’s view that a token’s status can evolve as a network becomes decentralised and functional. “A token is no more a security because it was once part of an investment contract than a golf course is a security because it used to be part of a citrus grove investment scheme,” he said.
Implications for Market Structure
Atkins said he has asked SEC staff to consider allowing tokens initially tied to investment contracts to trade on platforms outside SEC jurisdiction, including CFTC-regulated markets or state-regulated venues. This, he said, could support innovation without compromising investor protections.
He confirmed that the SEC will continue to enforce anti-fraud rules related to investment-contract sales, even when the underlying token is not itself a security. Coordination with the CFTC, banking regulators and state authorities will be central to building a “fit-for-purpose” model.
Atkins also signalled support for a tailored offering regime for crypto assets linked to investment contracts. The aim is to reduce friction, encourage smaller projects to innovate and provide clearer paths to compliance.
Supporting Congressional Action
Atkins stressed that Congress must play a leading role in defining a durable market-structure framework for digital assets. He said the SEC’s initiative, known as Project Crypto, is meant to complement, rather than replace, legislation. Clear statutes, he argued, are needed to prevent regulatory overreach and inconsistent enforcement.
A Commitment to Integrity
Atkins closed by saying the goal is not lighter enforcement but better enforcement. “Fraud is fraud,” he said. But legitimate innovators should be met with “clear rules, not a shrug, a threat, or a subpoena.”
He said acknowledging the limits of the SEC’s authority and recognising when investment-contract relationships end will help ensure markets remain both innovative and grounded in the rule of law.
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