SEC Chair Clarifies Crypto Token Categories
SEC Chair Paul Atkins made some of his most direct statements yet about which crypto tokens should be considered securities during a lengthy speech on Wednesday. His comments provide clearer guidance about how the Wall Street regulator plans to handle the growing crypto industry under the current administration.
Atkins emphasized that certain types of crypto tokens shouldn’t be treated as securities on their own. This aligns with previous statements from him and fellow Republican commissioner Hester Peirce. The categories he identified include what he called “network tokens” – those connected to functional, decentralized blockchain networks. This likely covers many popular cryptocurrencies like Ethereum, Solana, and XRP.
Three Exempt Categories
Another category Atkins mentioned was “digital collectibles.” These are cryptocurrencies that represent rights to media or reference internet memes, characters, current events, or trends. Under this definition, wildly popular meme coins would also fall outside the SEC’s jurisdiction.
The third category he identified was “digital tools” – crypto assets that serve practical functions like tickets, memberships, or badges. Atkins stated these shouldn’t be considered securities either.
While these classifications might not surprise people who’ve been following the SEC’s recent crypto-friendly moves, Wednesday’s speech offered more insight into the reasoning behind these views. The core principle Atkins highlighted is that an asset should only be considered a security when a third party’s managerial efforts are absolutely essential to promises about the asset’s future value.
The Managerial Efforts Test
Atkins repeatedly clarified that even though many crypto tokens are purchased with expectations of future profits, they should only be classified as securities if buyers are “expecting profits from the essential managerial efforts of others” due to explicit and unambiguous promises from the issuer.
Under these standards, most crypto tokens trading today probably wouldn’t fall under SEC jurisdiction. Interestingly, Atkins noted that even if a crypto token does qualify as an investment contract initially, it could later become a non-security if the issuer fulfills their promises, fails to meet them, or those promises otherwise end.
He did acknowledge that “tokenized securities” – representations of already-regulated securities that trade on-chain – would remain under SEC oversight. But he also expressed support for “super-apps” that allow both securities and non-securities to trade together on the same platform.
Looking Forward
Atkins revealed he’s asked his staff to prepare recommendations that would permit securities to trade on platforms not regulated by the SEC. “While capital formation should continue to be overseen by the SEC, we should not hamstring innovation and investor choice by requiring the underlying assets to trade in one regulated environment versus another,” he explained.
The speech concluded with Atkins reflecting on the SEC’s original purpose following the Great Depression. He believes the agency’s original mandate shouldn’t extend to cover most of the crypto industry. “Congress crafted the securities laws to address specific problems—situations in which people part with their money based on promises that depend on the honesty and the competence of others,” Atkins said. “They were not designed as a universal charter to regulate every novel form of value, digital or otherwise.”
This speech represents perhaps the clearest indication yet of how the SEC under Atkins plans to approach crypto regulation, drawing distinct lines between what falls under traditional securities oversight and what doesn’t.
