SEC Introduces Framework Clarifying How Crypto Assets Fall Under Securities Laws

The U.S. SEC has unveiled a token taxonomy framework that formally categorizes digital assets under U.S. securities law.

The initiative, announced by Chairman Paul Atkins during the Philadelphia Fed Fintech Conference, expands on the regulator’s ongoing ‘Project Crypto’ program.

The framework represents the SEC’s most detailed attempt yet to define how existing securities rules apply to cryptocurrencies, non-fungible tokens (NFTs), and other blockchain-based assets.

Structured Approach to Digital Asset Classification

Notably, Atkins states that the framework seeks to provide regulatory clarity by defining how various token types are treated under federal law. According to him, most crypto tokens currently trading on the market are not considered securities.

He explained that the classification system builds on the Howey Test, the decades-old legal standard for identifying investment contracts. However, the SEC intends to apply the test with more flexibility, recognizing the distinct nature of decentralized networks.

What the Token Taxonomy Includes

As reported by Eleanor Terrett, the SEC’s Crypto Task Force is in the final stages of developing precise definitions for the categories within the new token taxonomy.

Under the current proposal, digital commodities, collectibles (NFTs and in-game assets), and utility tokens would not be considered securities.

In contrast, tokenized versions of traditional financial instruments, including stocks and bonds, would continue to fall under securities law.

Atkins outlined two guiding principles. First, traditional financial instruments retain their legal identity even when represented on a blockchain. Second, labelling an asset as a “token” or “NFT” does not exempt it from securities laws if its value depends on the managerial efforts of others.

How Token Status Can Change Over Time

Atkins used the Howey citrus grove analogy to illustrate how token status may evolve. He explained that, during the early stages of fundraising, a token may initially constitute part of an investment contract. However, it may cease to be regarded as a security once its network attains decentralization and no longer relies on a central authority.

This distinction means that secondary trading of such tokens could occur outside SEC-regulated exchanges, depending on their degree of decentralization.

5/Atkins used the Howey citrus grove analogy to explain:

📌Land became a security only through a specific contract.

📌Once the arrangement ended, it ceased to be a security.

📌Same logic applies to crypto tokens that evolve past their initial launch.

— Eleanor Terrett (@EleanorTerrett) November 12, 2025

Shared Oversight and Policy Coordination

Moreover, the framework outlines that non-security tokens may fall under the jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC) or state-level regulators.

While signaling flexibility, Atkins reaffirmed that fraud enforcement remains a top priority. He emphasized that regulatory adaptability should not compromise investor protection. Simultaneously, he described the new framework as a step toward responsible innovation in digital finance.

Finally, Atkins added that a balanced approach, combining flexibility with strong enforcement, will help maintain U.S. leadership in the global crypto economy.