April 3, 2026

SEC and CFTC Guidance Delivers Long-Awaited Crypto Clarity

Christopher Bosch, Maxwell Earp-Thomas Sheppard, Mullin, Richter & Hampton LLP + Follow Contact LinkedIn Facebook X Send Embed

On March 17, 2026, the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) jointly issued guidance addressing the application of federal securities and commodities laws to digital assets (the “Guidance”). The Guidance sets forth a digital asset taxonomy, making clear for the first time which assets the regulators consider to be within their respective purviews based upon their characteristics, uses, and functions. It also draws a distinction between digital securities and non-security crypto assets subject to an investment contract and articulates the circumstances under which that contract arises and dissolves. The Guidance formally supersedes the SEC’s 2019 Framework for “Investment Contract” Analysis of Digital Assets, and does so as a formal interpretive rule under the Administrative Procedure Act, meaning it is more authoritative than the informal frameworks and statements of the past.

The Guidance breaks digital assets down into five categories: (1) digital commodities; (2) digital collectibles; (3) digital tools; (4) stablecoins; and (5) digital securities. In concluding that the first four do not constitute securities, the SEC considered several recurring characteristics, including the source of the asset’s value, its intrinsic economic properties or rights, and its purpose.

Digital commodities are intrinsically linked to, and derive their value from, the programmatic operation of a “functional” crypto system, as well as supply and demand dynamics, rather than from the expectation of profits from the essential managerial efforts of others. That programmatic operation includes facilitating and incentivizing the validation, ordering, and confirmation of transactions on the system, and fostering network effects (i.e., where the value, use, and security of a crypto system increase as more users participate in the system). Digital commodities do not have intrinsic economic properties or rights, such as generating a passive yield or conveying rights to the future income of a business enterprise.

The Guidance identifies eighteen examples of digital assets that the SEC views as commodities, including five that the SEC had previously asserted in enforcement actions were securities: XRP, Cardano, Solana, Algorand, and LBRY Credits. Of note, in 2022, the SEC famously obtained summary judgment against LBRY, Inc., with the court holding that “no reasonable trier of fact could reject the SEC’s contention that LBRY offered [LBRY Credits] as a security.” SEC v. LBRY, Inc., 639 F. Supp. 3d 211, 222 (D.N.H. Nov. 7, 2022). LBRY, Inc. shuttered in October 2023 following the loss in court, but the LBRY protocol, LBRY Credits, and the foundational video platform with which they were integrated, Odysee, have lived on.

Digital collectibles are designed to be collected and/or used and may represent or convey rights to creative works. Their value is not based on the expectation of profits from any essential managerial efforts of their creators but rather on supply and demand, as is the case with physical collectibles. They do not have intrinsic economic properties or rights. However, the Guidance cautions in passing that managing fractionalized NFTs could give rise to a security without providing a clear example of such a scenario.

Digital tools are crypto assets that perform a practical function, such as a membership, ticket, credential, title instrument, or identity badge. Their value derives from their practical functionality, and they do not carry intrinsic economic properties or rights. 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.

Stablecoins issued pursuant to the GENIUS Act will not be securities by operation of that statute after its effective date. Additionally, “Covered Stablecoins” as defined in the SEC’s Statement on Stablecoins, are not securities. Stablecoins other than these may meet the definition of “security” depending on the facts and circumstances.

Digital securities, commonly known as “tokenized” securities, are financial instruments enumerated in the statutory definition “security” that are 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. They carry the intrinsic economic properties or rights of the underlying security. With this category, the SEC appears to be targeting off-chain securities that have been tokenized (e.g., stocks), rather than native non-security digital assets subject to an investment contract.

After setting forth this taxonomy, the Guidance addresses the Howey Test, established by the U.S. Supreme Court in SEC v. W.J. Howey Co., 328 U.S. 293 (1946) for determining when a security exists in the form of an investment contract. The Guidance articulates when non-security crypto assets become subject to, and might separate from, such investment contracts. The former depends upon how an issuer markets and promotes a contract, transaction, or scheme. The inquiry is whether an issuer offers the asset by inducing an investment of money in a common enterprise with representations or promises conveyed to purchasers to undertake essential managerial efforts from which a purchaser would reasonably expect to derive profits.

Several observations regarding this formulation are notable:

First, the Guidance underscores - 75 times - that the managerial efforts must be “essential,” an oft-overlooked judicial augmentation of the Howey Test established in SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476 (9th Cir. 1973). Such efforts are “the undeniably significant ones . . . which affect the failure or success of the enterprise.” Id. The repetition of this framing of the “efforts of others” prong of the Howey Test suggests that the SEC will be looking for those managerial or entrepreneurial efforts that are integral, not just helpful, when assessing whether an investment contract exists.

Second, it highlights that requisite representations or promises must be “conveyed to purchasers” by or on behalf of the issuer. The Guidance indicates that such representations may be made directly or broadly disseminated, such as on the issuer’s website or social media if the issuer has established a regular pattern of communicating in that way. It also states that an investment contract persists in secondary market transactions as long as a purchaser’s reasonable expectation of profits based on an issuer’s representations persists. The Guidance does not require that purchasers knowingly buy from an issuer in the secondary market for that reasonable expectation to arise. As such, the Guidance does not appear to align with the controversial decision in SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 330 (S.D.N.Y. 2023), which held that Ripple did not offer to sell XRP to purchasers on the secondary market because the purchasers did not know whether they were buying directly from Ripple.

Third, the Guidance explains that non-security crypto assets offered and sold pursuant to an investment contract may separate from that contract if purchasers cease to reasonably expect that the issuer will engage in essential managerial efforts. This may come to pass when an issuer has either fulfilled, or failed to achieve, its promised efforts.

The Guidance goes on to address certain protocol mining and staking activities, stating that they do not involve the offer and sale of securities because they are not undertaken with a reasonable expectation of profits derived from the essential managerial efforts of others. “Wrapping” tokens generally does not create a security. Finally, airdrops of non-crypto digital assets generally do not constitute the offer and sale of securities. However, the Guidance does not cover airdrops in which recipients have provided the issuer money, goods, services, or other consideration in exchange for the airdropped tokens.

Conclusion

The Guidance largely delivers on the SEC’s promise to bring much-needed clarity regarding which digital assets fall subject to federal securities or commodities laws. Issued as a formal interpretive rule under the Administrative Procedure Act, the Guidance carries greater weight than the SEC’s past informal proclamations on the subject. This Guidance arrives in the shadow of ongoing Congressional efforts to pass crypto market structure legislation, and presumably was informed by discussions surrounding those efforts such that it will not fundamentally conflict with the final product. Notably, the SEC invited public comment regarding this interpretive rule, affording industry participants additional opportunities to inform the SEC’s regulatory prerogative on digital assets.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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