The U.S. Securities and Exchange Commission (SEC) just released new guidance on April 10, 2025, to clarify how to classify crypto types under U.S. securities law. The goal is to reduce ambiguity and update the application of the Howey test to digital assets.
This guidance helps projects, investors, and exchanges better understand which cryptos may be considered securities.
🔍 THE EVALUATION METHOD STILL BASED ON THE HOWEY TEST
The Howey test has four elements:
– Investment of money
– Expectation of profits
– There is a conflict of interest among investors
– Relying on the efforts of others to profit
SEC emphasizes that the 'expectation of profit' factor is very important. If token buyers expect to profit mainly from the efforts of a central development team, the token may be considered a security.
🧩 FRAMEWORK FOR EVALUATING 3 NEW ELEMENTS
SEC introduces an additional evaluation method consisting of 3 parts:
– Was the token promoted as an investment when it was first sold?
– Does the token have a practical function on a decentralized network?
– Whether the development team still controls or has significant influence over the token
✅ TYPES OF TOKENS NOT CONSIDERED SECURITIES
– ETH after the Merge event and stablecoins backed by real money, transparent and used for payments
– Tokens used for transaction fees on blockchain networks like ETH, SOL, AVAX
– Tokens should not be advertised as expected to increase in value or generate profits
– Decentralized projects, community-managed and open-source
⚠️ TYPES OF TOKENS EASILY REGARDED AS SECURITIES
– Token issued through ICO and marketed as expected to increase in value or generate profits
– Governance tokens that distribute profits, revenues, or dividends
– Utility tokens but marketed with the investment goal
– Tokens managed by a central group, pre-mined, with a limited supply and promised to increase in value
– Tokens previously litigated like LBRY or XRP in sales to institutional investors
❓ GRAY AREA AND UNCLEAR POINTS
– Governance tokens do not directly distribute profits but influence decisions related to revenue
– DAOs operate like companies but lack a clear legal framework
– Many projects have both utility and investment elements, making classification difficult
To address this, projects should have clear legal opinions or seek no-action letters from the SEC. However, these letters are rare and only apply to specific cases.
💥 IMPACT ON THE CRYPTO INDUSTRY
– For token-issuing projects: it must be clearly determined whether the token is considered a security. If so, it needs to be registered with the SEC or redesigned to focus on its practical function and decentralization
– For investors: there may be fewer tokens available as some may be delisted for regulatory violations. However, the market will be safer and less risky
– For exchanges: they must enhance legal scrutiny when listing tokens, and may need to register as securities exchanges or brokers
🗣️ INDUSTRY REACTION
– Many legal experts appreciate having clearer guidelines
– However, some opinions suggest that the evaluation method remains subjective, especially with decentralized projects
– Coinbase believes that airdropping or selling tokens with clear use cases should not be considered as security issuance
– Some support it as they believe regulations will better protect investors
– Some criticize the SEC for believing this is a method of 'regulation by enforcement,' making it difficult for startups