U.S. Securities and Exchange Commission chair Paul Atkins says the regulator is considering a new framework for classifying digital assets.
Summary
- Paul Atkins says the regulator is considering a new framework for digital asset classification.
- The SEC chair says a token taxonomy “anchored in the longstanding Howey investment contract” securities analysis is key.
- Digital commodities or network tokens, digital collectibles, and digital tools are not securities, but tokenized securities are.
While speaking at the Federal Reserve Bank of Philadelphia, Atkins recalled “Project Crypto,” an initiative the agency rolled out earlier in the year as part of the new regulatory shift under President Donald Trump.
According to Atkins, the goal is to differentiate between the types of cryptocurrencies, outlining which fall under securities law and which don’t. The SEC is looking to take this approach amid broader support for legislative efforts underway in Congress.
“In the coming months, I anticipate that the Commission will consider establishing a token taxonomy that is anchored in the longstanding Howey investment contract securities analysis, recognizing that there are limiting principles to our laws and regulations,” the SEC chair said.
While the agency continues to ensure market participants adhere to investor protection principles and laws, Atkins says most cryptocurrencies do not, in themselves, qualify as securities.
So, what does Atkins think?
The SEC chair outlined four categories: digital commodities or network tokens, digital collectibles, digital tools and tokenized securities.
It is the classification that Atkins says will help form a “coherent token taxonomy.”
“This framework follows months of roundtables, more than a hundred meetings with market participants, and hundreds of written submissions from the public,” Atkins said.
According to this classification, digital commodities, or network tokens, are not securities. The same applies to digital collectibles and digital tools, as buyers of these assets do not expect “profits from the essential managerial efforts of others.”
However, tokenized securities are securities as they represent ownership of a financial instrument.
But Atkins says not every token that satisfies the investment contract classification at the time of its sale will remain a security forever.
“Once the investment contract can be understood to have run its course, the token may continue to trade, but those trades are no longer “securities transactions” simply by virtue of the token’s origin story,” he added.