The U.S. Securities and Exchange Commission (SEC) just released new guidance on April 10, 2025, to clarify how to classify types of crypto under U.S. securities law. The goal is to reduce ambiguity and update the application of the Howey test to digital assets.
This guide helps projects, investors, and exchanges better understand which cryptos may be considered securities.
🔍 THE ASSESSMENT METHOD STILL BASED ON HOWEY TEST
The Howey test has four factors:
– There is an investment of money
– There is an expectation of profits
– There is a vested interest linkage among investors
– Relying on the efforts of others to earn profits
The SEC emphasizes that the 'expectation of profit' factor is very important. If token buyers expect to earn primarily from the efforts of a central development team, the token may be considered a security.
🧩 FRAMEWORK FOR ASSESSING 3 NEW ELEMENTS
SEC introduces an additional assessment method consisting of 3 parts:
– Is the token promoted as an investment when first sold?
– Does the token have practical functionality on a decentralized network?
– Whether the development team still controls or significantly influences the token
✅ TYPES OF TOKENS THAT ARE 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 profit
– Decentralized projects, community-managed and open-source
⚠️ TYPES OF TOKENS LIKELY TO BE CONSIDERED SECURITIES
– Token issued through ICO and promoted as expected to increase in value or generate profit
– Governance tokens share profits, revenues, or dividends
– Utility tokens but marketed with investment goals
– Tokens managed by a central group, pre-mined, with limited supply and promised to increase in value
– Tokens previously sued like LBRY or XRP in sales to institutional investors
❓ GRAY AREA AND UNCLEAR POINTS
– Governance tokens, while not directly sharing profits, can influence revenue-related decisions
– 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 issuance projects: it must be clearly determined whether the token is considered a security. If so, registration with the SEC is required or redesign the token to focus on practical functionality and decentralization
– For investors: may see fewer tokens as some are delisted for regulatory violations. However, the market will be safer and less risky
– For exchanges: must enhance legal scrutiny when listing tokens, may need to register as securities exchanges or brokers
🗣️ INDUSTRY RESPONSE
– Many legal experts appreciate clearer guidelines
– However, some opinions suggest that the assessment method remains subjective, especially with decentralized projects
– Coinbase believes that airdrops or selling tokens with a clear purpose should not be considered securities issuance
– Some proponents argue that regulation will better protect investors
– Some criticize the SEC for claiming this is a way of 'regulating by punishment', making it difficult for startups