SEC And CFTC Issue Interpretive Guidance Establishing Crypto Asset Classification Framework

On March 17, 2026, the U.S. Securities and Exchange Commission (the "SEC" or the "Commission") issued an interpretation — not a binding regulation — addressing how the federal securities laws apply to certain types of crypto assets and transactions involving crypto assets (the "Digital Asset Interpretation").¹ The U.S. Commodity Futures Trading Commission (the "CFTC") did not co-issue the Digital Asset Interpretation but separately provided guidance indicating that it intends to administer the Commodity Exchange Act consistently with the SEC's interpretation.²

If you hold, trade, issue, or advise on crypto assets or crypto-linked derivatives, this client update is relevant to you.

The Digital Asset Interpretation represents a notable shift in the SEC's regulatory posture toward the crypto asset industry, moving from reliance primarily on enforcement actions to affirmative guidance establishing a classification framework and clarifying when crypto-related activities do or do not implicate the federal securities laws. Relatedly, the CFTC’s accompanying guidance stated that certain "non-security crypto assets" under the Digital Asset Interpretation could fall within the definition of "commodity" under the Commodity Exchange Act (the “CEA”).

The Digital Asset Interpretation has been designated a "major rule" under the Congressional Review Act, but because it is an interpretive rule (as opposed to a legislative or substantive rule), it is exempt from the Administrative Procedure Act's ("APA") notice-and-comment requirements and took effect immediately upon publication. Nonetheless, the SEC is soliciting public comment on the views set forth in the Digital Asset Interpretation and has indicated that, based on feedback received, it may "refine, revise, or expand upon" the Digital Asset Interpretation.

How Does the Digital Asset Interpretation Classify Crypto Assets?

A central feature of the Digital Asset Interpretation is the establishment of a taxonomy that classifies crypto assets into distinct categories based on their characteristics, uses, and functions, and then analyzes each category under the statutory definition of "security" under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"). The categories are as follows:

Digital Commodities. A digital commodity is a crypto asset intrinsically linked to, and deriving its value from, the programmatic operation of a "functional" crypto system and supply and demand dynamics, rather than from the expectation of profits based on the essential managerial efforts of others. An “expectation of profits” from the “efforts of others” is part of the analysis employed by the SEC and courts under the “Howey Test”, developed by the U.S. Supreme Court in 1946 to determine if something is an investment contract, and therefore a security. Under the Howey Test, an investment contract exists when there is an investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others.³ 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, but it may convey certain technical rights (such as staking) or governance rights (such as voting on software upgrades). A digital commodity is therefore not a security.

The Digital Asset Interpretation identifies a number of specific crypto assets as digital commodities, including BTC, ETH, SOL, ADA, AVAX, LINK, DOGE, LTC, DOT, SHIB, XLM, XTZ, and XRP, among others.

The Digital Asset Interpretation notes that each of these underlies a futures contract available for trading on a CFTC-regulated designated contract market, but clarifies that it is not necessary for a crypto asset to underlie such a futures contract to qualify as a digital commodity.

Digital Collectibles. A digital collectible is a crypto asset designed to be collected or used, such as artwork, music, videos, trading cards, in-game items, or digital representations or references to internet memes, characters, current events, or trends (commonly known as "meme coins"). Their value is based on supply and demand rather than essential managerial efforts, and they do not provide holders with any legal rights or interest in a business enterprise. Again, the SEC is employing language from the Howey Test in its negative use of “business enterprise” to state when digital collectibles are not securities.

You should be aware of two important nuances here:

• A meme coin that initially has no functionality may later become a digital commodity if it becomes functional within an associated functional crypto system.
• A digital collectible that is fractionalized to enable fractional ownership interests could constitute a security.

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. They are often non-transferable or "soul-bound," and their value is derived from functional utility rather than from any expectation of profits based on the essential managerial efforts of others. The “efforts of others” again echoes the Howey Test.

Stablecoins. Payment stablecoins, as defined in the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the "GENIUS Act") (i.e., those issued by a "permitted payment stablecoin issuer" under that legislation), will be excluded from the definition of "security" by statute upon the earlier of 18 months after enactment (January 18, 2027) or 120 days after final implementing regulations are issued.⁴ Given that the GENIUS Act is not yet effective as of the date of the Digital Asset Interpretation, the Commission has separately interpreted that "Covered Stablecoins" (as defined in the SEC Staff's Stablecoin Statement) are not securities based on an application of the Howey Test. You should be aware that the stablecoin exclusion currently rests on this interpretive position rather than on the statutory exclusion, which has not yet taken effect.

Digital Securities (Tokenized Securities). A digital security commonly known as a “tokenized security” is a financial instrument enumerated in the statutory definition of "security" that is formatted as or represented by a crypto asset, with ownership records maintained in whole or in part on one or more crypto networks. Tokenization is defined in the Digital Asset Interpretation as the process of creating a digital representation of a tangible or intangible asset using blockchain or similar distributed ledger technology. A security is a security regardless of whether it is issued offchain or onchain.

Tokenized securities generally fall into two categories:

• Securities tokenized by or on behalf of the issuers.
• Securities tokenized by unaffiliated third parties, which may involve the third party issuing a separate security linked to the subject security.

Digital securities may also provide non-financial benefits to holders, but providing such benefits does not cause a digital security to fall outside of the definition of "security."

Importantly, a non-security crypto asset that is subject to an investment contract is not a tokenized security — it remains a non-security crypto asset that happens to be subject to an investment contract.

When Is a Non-Security Crypto Asset Subject to an Investment Contract?

The Digital Asset Interpretation addresses how a non-security crypto asset may become subject to, and how it may cease to be subject to, an investment contract under the Howey Test.

How do crypto assets become subject to an investment contract? 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 essential managerial efforts from which a purchaser would reasonably expect to derive profits. Absent such representations or promises, it would not be reasonable for a purchaser to expect profits from the arrangement.

The Digital Asset Interpretation provides detailed guidance on factors bearing on whether a purchaser's expectations of profit are reasonable, including:

• Source of representations — only those made by or on behalf of the issuer, not unaffiliated third parties, unless authorized by the issuer.

• Timing — representations must be conveyed prior to or contemporaneously with the offer or sale; post-sale representations do not convert a prior sale into an investment contract.

• Manner of communication — written or oral agreements, official channels, regulatory filings, or documents clearly attributable to the issuer.

• Level of specificity — representations are more likely to create reasonable expectations when they are explicit, detailed, and explain how the issuer's efforts will produce the expected profits.

Importantly, the fact that a non-security crypto asset is subject to an investment contract does not transform the crypto asset itself into a security. Activities by an issuer or creator that facilitate network effects do not constitute essential managerial efforts.

How does a non-security crypto asset separate from the investment contract? A non-security crypto asset that was offered and sold subject to an investment contract does not necessarily remain subject to that investment contract in perpetuity. The Digital Asset Interpretation identifies two principal circumstances in which separation occurs:

• Fulfillment of promises. A non-security crypto asset is no longer subject to an investment contract once the issuer has fulfilled its representations or promises to engage in essential managerial efforts — measured against how the issuer itself defined or described those efforts, not against a general market conception.
• Abandonment of efforts. A non-security crypto asset ceases to be subject to an investment contract if a purchaser would not reasonably expect the issuer to be able to fulfill or continue to engage in the essential managerial efforts it promised, such as where a sufficiently long period has passed without promised efforts being conducted, or where the issuer publicly announces it will no longer perform the promised efforts. Any such public announcement should be "widely disseminated" and "unambiguous."

Are Mining, Staking, Wrapping, and Airdrops Securities Transactions?

Protocol Mining. With respect to protocol mining on proof-of-work networks, the Commission concludes that self (or solo) mining and participation in mining pools are not securities transactions because miners contribute their own computational resources rather than relying on the essential managerial “efforts of others”. However, where miners passively rely on the pool operator to provide computational resources, the pool operator's activities constitute essential managerial efforts.

Protocol Staking. Protocol staking on proof-of-stake networks is not a securities transaction. The Digital Asset Interpretation addresses multiple forms of staking — including solo staking, self-custodial staking with a third party, custodial arrangements, and liquid staking where depositors receive Staking Receipt Tokens — concluding in each case that the activities of node operators, custodians, and liquid staking providers are administrative or ministerial in nature.

You should note the following regarding Staking Receipt Tokens:

• Staking Receipt Tokens issued as receipts for non-security crypto assets not subject to an investment contract are not securities.
• A Staking Receipt Token that is a receipt for a digital security or for a non-security crypto asset subject to an investment contract would be a security.

The Digital Asset Interpretation also identifies ancillary services that staking providers may offer without triggering securities law concerns, including:

• Slashing coverage
• Early unbonding
• Alternate rewards payment schedules
• Aggregation of digital commodities to meet staking minimums

However, if a provider guarantees or fixes the amount of rewards, or exercises discretion over whether, when, or how much to stake, those activities fall outside the scope of the Digital Asset Interpretation.

Wrapping. The "wrapping" of a non-security crypto asset — depositing a crypto asset with a custodian or cross-chain bridge and receiving an equivalent "Redeemable Wrapped Token" on a one-for-one basis — does not involve the offer and sale of a security. The wrapping process is administrative or ministerial in nature, and there is no financial incentive derived from the process because the Redeemable Wrapped Token is redeemable only on a fixed, one-for-one basis. However, a Redeemable Wrapped Token that is a receipt for a digital security or a non-security crypto asset subject to an investment contract would itself be a security.

Airdrops. Certain disseminations of crypto assets known as "airdrops" do not involve an "investment of money" under the Howey Test and therefore fall outside the scope of the federal securities laws, provided the recipient does not provide the issuer with money, goods, services, or other consideration in exchange for the airdropped asset. If you or your clients provide such consideration (such as performing a service), the Digital Asset Interpretation does not apply and the airdrop may require further analysis.

What Are the Limitations of this Guidance?

What is the legal weight of the Digital Asset Interpretation? It is important to emphasize that the Digital Asset Interpretation is an interpretation, not a rulemaking. The Commission has expressly characterized it as "the Commission's first step toward developing a clearer regulatory framework for the treatment of crypto assets under the Federal securities laws."

While the Digital Asset Interpretation conveys the Commission's views on how the Howey Test and the definition of "security" apply to crypto assets, it does not have the binding force of a regulation adopted through notice-and-comment rulemaking. The Commission has stated that it and its staff "will administer the Federal securities laws consistent with the interpretation, including with respect to enforcement actions," which provides some measure of practical comfort.

However, you should be mindful of the following:

• Courts are not bound by it and may reach different conclusions when applying the Howey Test.
• A future Commission could revise or withdraw it.
• The Commission itself acknowledges it may "refine, revise, or expand upon" the Digital Asset Interpretation based on public comments received.
• Congress is developing and may soon consider digital asset market structure legislation including the Digital Asset Market Clarity Act of 2025 (the "Clarity Act"),⁵ that would supersede the Digital Asset Interpretation if a digital asset market structure bill were signed into law. This creates an inherent tension if you are seeking to structure transactions and compliance programs around the guidance — the Digital Asset Interpretation provides directional clarity but not the regulatory certainty that formal rulemaking or a new regulatory framework legislation would offer.

Why is the absence of swap and derivatives analysis significant? Notably absent from the Digital Asset Interpretation is any analysis of whether crypto assets — including those classified as digital commodities — may constitute "swaps" under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") or "security-based swaps" under the Exchange Act.

While the Digital Asset Interpretation notes that the CFTC will administer the CEA consistently with the Digital Asset Interpretation and that non-security crypto assets could meet the definition of "commodity" under the CEA, it does not address how derivative instruments referencing crypto assets are to be treated, or whether certain structured crypto transactions could be recharacterized as swaps subject to the CFTC's jurisdiction or as security-based swaps subject to the SEC's jurisdiction.

This is a significant gap if you are active in the growing market for crypto-linked derivatives, perpetual futures, and structured products. The Digital Asset Interpretation expressly disclaims any interference with other legal regimes, but if you are operating in the derivatives space, you will need separate guidance to assess your regulatory obligations.

What grey areas remain? While the Digital Asset Interpretation provides a welcome taxonomy and substantially clarifies the Commission's approach to many common crypto assets and activities, considerable grey areas persist that will require case-by-case analysis. For example:

• The Digital Asset Interpretation acknowledges that there may be crypto assets that do not fall neatly within any of its five categories, as well as "crypto assets with hybrid characteristics that may fall within more than one category."
• The boundary between a digital commodity and a digital collectible that evolves into a digital commodity, or between a stablecoin that qualifies under the GENIUS Act and one that does not, will require careful factual assessment.
• The "separation" framework introduces fact-intensive questions about when an issuer has "fulfilled" its promises or when a "sufficiently long period" has passed — standards that may prove difficult to apply in practice without further guidance.
• The Digital Asset Interpretation does not directly address lending and borrowing platforms or "restaking," which is an increasingly prevalent activity that the Digital Asset Interpretation expressly excludes from its scope.

Key Takeaway

The Digital Asset Interpretation is a critical regulatory step that provides additional clarity for anyone who holds, trades, issues, or advises on crypto assets or crypto-linked derivatives. Accordingly, market participants should carefully review the new interpretive guidance and assess its application to any existing and planned digital asset market activities.

Quick Reference Guide: Crypto Asset Classification and Securities Law Status

Footnotes

1. Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Release Nos. 33-11412; 34-105020, File No. S7-2026-09, RIN 3235-AN56 (Mar. 17, 2026) (the "Digital Asset Interpretation").

2. https://www.cftc.gov/PressRoom/PressReleases/9198-26

3. SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

4. GENIUS Act, Public Law No. 119-27, S. 1582, 119th Congress (2025-2026).

5. Digital Asset Market Clarity Act OF 2025, H.R. 3633, 119th Congress (2025–2026).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.