On March 20, 2025, the SEC's Division of Corporation Finance issued the "Statement on Certain Proof-of-Work Mining Activities" (PoW Statement), which provides that certain proof-of-work (PoW) mining activities are not subject to securities regulations.
The PoW Statement:
[A]ddresses the mining of crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless network, and are used to participate in and/or earned for participating in such network's consensus mechanism or otherwise used to maintain and/or earned for maintaining the technological operation and security of such network." (Covered Crypto Assets)
The Division's view is limited to the following crypto mining activities and transactions (Mining Activities):
- Mining Covered Crypto Assets on a PoW network; and
- The roles of mining pools and pool operators involved in the PoW network mining process, including their roles in connection with the earning and distribution of rewards.
Only Mining Activities undertaken in connection with the following types of mining are addressed in the PoW Statement:
- Self (or Solo) mining, which involves a miner mining Covered Crypto Assets using its own computational resources. The miner may work alone or together with others to operate a node and mine Covered Crypto Assets.
- Mining pools, which involve miners combining their computational resources with other miners to increase their chances of successfully validating transactions and mining new blocks on the network. Reward payments may flow from the network directly to the miners or indirectly to them through the pool operator.
The Division found that a Covered Crypto Asset does not constitute any of the financial instruments that are specifically enumerated in the definition of "security" under the Securities Act or the Exchange Act. Therefore, the SEC applied the "Howey test" to determine that participants in the mining of Covered Crypto Assets (1) may not need to register transactions with the SEC under the Securities Act, or (2) fall within one of the Securities Act's exemptions from registration in connection with Mining Activities.
Is this a game changer? Maybe not yet. The problem is that all other PoW network activities that are not explicitly covered by the guidance may, in fact, be subject to the federal securities laws and regulations under the Howey test.
For instance, if an entity offers agreements that allow for profit-sharing, like pooled mining investments or tokenized revenue streams, such arrangements may qualify as investment contracts. This distinction is crucial for developers and the broader market to understand. In effect, the SEC's exemption could be of limited value to blockchain entrepreneurs, at least for now.
NFTs May Soon Receive Similar Treatment
On March 21, 2025, SEC Crypto Task Force lead Hester Peirce said in a statement to the press that the agency may next issue a statement about the non-security status of certain kinds of NFTs. The statement could carve out art NFTs and allow crypto projects to fundraise with NFTs. If true, this could be another major game changer. In effect, the SEC would be creating a pathway for developers to raise capital for their projects that would not require SEC registration. We will wait to see the details.
Peirce also emphasized that a project featuring NFTs would not be automatically exempt from securities regulations. For instance, a tokenized security that is structured as an NFT would not be exempt. Again, the devil is in the details.
Our sense is that raising capital to build projects may be exempt, but issuing tokens to generate a profit from the activity of others may expressly fall into the Howey test.
Such a staff statement would not only continue a notable shift from the SEC's stricter stance on digital assets under its former Chair Gary Gensler, as exemplified by SEC actions against three such projects—Stoner Cats, Flyfish Club, and Impact Theory—it would also have important implications for similar projects using NFTs as a fundraising mechanism.
Stoner Cats, an adult animated series, raised an estimated $8 million through the sale of NFTs that offered holders certain perks, like access to view the series. The NFTs were also tradable on secondary markets, with each transaction earning a 2.5 percent royalty for the Stoner Cats project.
Flyfish Club raised over $14 million through NFT sales to fund the construction of a members-only private restaurant. The NFTs offered holders membership to the restaurant, and they were similarly resellable on secondary markets with a similar royalty structure generating additional revenue for the project.
Impact Theory raised roughly $30 million by offering three tiers of tokens known as "Founder's Key" (KeyNFT). Impact Theory promised holders that the KeyNFT would increase in value. Commissioner Peirce previously issued a statement that the KeyNFT structure was more akin to offering a collectible than a share in the company.
A staff statement that such NFT fundraising activities would be exempt from securities regulations would open doors for other projects to employ similar structures.
Duane Morris continues to monitor the daily changes in crypto, so stay tuned for the next Alert that will highlight an important change to the digital assets and blockchain industry.
For More Information
If you have any questions about this Alert, please contact Mauro M. Wolfe, Carolina Goncalves, any of the attorneys in our Digital Assets and Blockchain Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
