SEC Issues Groundbreaking Interpretation On Crypto Asset Regulation

After more than a decade of regulatory uncertainty, on March 17, 2026, the US Securities and Exchange Commission (SEC) issued an interpretation clarifying how federal securities laws apply to crypto assets and that most crypto assets are not securities ("the interpretation").¹ The Commodity Futures Trading Commission (CFTC) has stated it will administer the Commodity Exchange Act consistent with this interpretation, and has confirmed that non-security crypto assets could meet the definition of "commodity" under that statute.² This interpretation represents the SEC's most comprehensive effort to date to articulate a coherent framework for crypto asset regulation.

Background and context

The interpretation marks a shift from what critics described as "regulation by enforcement" to a more principles-based regulatory framework.³ Following the 2017 DAO Report, the SEC, particularly during the previous administration and under Chairman Gary Gensler, applied the US Supreme Court's Howey test to crypto assets primarily through enforcement actions rather than comprehensive rulemaking, creating significant uncertainty for market participants.⁴ In 2019, the SEC issued its "Framework for 'Investment Contract' Analysis of Digital Assets" (the "framework"), outlining how it applied the Howey test to crypto assets and identified a set of non-exhaustive factors to determine whether a cryptocurrency was being offered as a security.⁵ The framework emphasized economic reality over form and highlighted "consumptive use" as a mitigating factor, while recognizing that assets with both consumptive and speculative characteristics may still be securities.⁶

Current SEC Chairman Paul S. Atkins has emphasized that "most crypto assets are not themselves securities" and that "investment contracts can come to an end," reflecting a departure from the prior administration's approach.⁷ This interpretation follows extensive engagement through the SEC's Crypto Task Force and implements recommendations from the president's Working Group on Digital Asset Markets to provide greater regulatory clarity and support blockchain-based innovation in the United States.⁸ Since Chairman Atkins assumed office, the SEC has also issued a series of statements providing additional clarity across key areas of the crypto asset ecosystem.⁹ This interpretation consolidates and formalizes many of the views expressed in previous SEC statements.

Investment contract framework

The interpretation is clear that it does not supersede or replace the Howey test. Instead, through the interpretation, the SEC is clarifying how the Howey test applies to crypto assets and transactions involving crypto assets.

Creation of investment contracts. The interpretation clarifies that a "non-security crypto asset becomes subject to an investment contract when an issuer offers it by inducing an investment of money in a common enterprise with representations or promises to undertake essential managerial efforts from which a purchaser would reasonably expect to derive profits."¹⁰ A purchaser's reasonable expectation of profit depends on the issuer's representations or promises to perform essential managerial efforts.¹¹ Absent such representations or promises, it would not be reasonable for purchasers to expect profits.¹² The interpretation emphasizes that the manner of communication is central to shaping investor expectations. It notes that purchasers may reasonably rely on representations conveyed through "the issuer's website or official social media accounts... direct private communications... or a whitepaper."¹³ Detailed and specific business plans are more likely to create reasonable profit expectations than vague or aspirational statements.¹⁴ The interpretation also draws a significant distinction between primary and secondary market transactions, stating that "a non-security crypto asset that has been subject to an investment contract does not remain subject to the associated investment contract in secondary market transactions where purchasers would not reasonably expect such representations or promises to remain connected to the non-security crypto asset."

Separation from investment contracts. The interpretation confirms that a "non-security crypto asset that was offered and sold subject to an investment contract does not necessarily remain subject to the associated investment contract in perpetuity."¹⁵ Separation may occur where the issuer has fulfilled its promised essential managerial efforts or where it becomes clear those efforts will not be performed, including through abandonment.¹⁶ In such cases, purchasers would no longer reasonably expect profits based on those efforts.¹⁷ The initial offer and sale of the investment contract must still have been registered or be exempt, and issuers remain subject to liability: The issuer "may be subject to liability under the anti-fraud provisions... even if the... investment contract ceases to exist."¹⁸

Five-category taxonomy

The interpretation creates a five-part taxonomy for crypto assets: digital commodities, digital collectibles, digital tools, stablecoins, and digital securities.¹⁹

Digital commodities. Digital commodities are crypto assets whose value derives from the programmatic operation of a functional crypto system and market supply and demand, rather than from expectations of profits based on the essential managerial efforts of others.²⁰ Digital Commodities do not have a central party that "oversees participation or distributes rewards to users."²¹ The Interpretation defined a central party as "a person, entity, or group of persons or entities having operational, economic, or voting control of a crypto system."²² Examples of Digital Commodities include APT, AVAX, BTC, BCH, ADA, LINK, DOGE, ETH, HBAR, LTC, DOT, SHIB, SOL, XLM, XTZ, XRP, and similar assets.²³ They are used to validate transactions, secure networks, and enable system functionality, and are not themselves securities.²⁴

Digital collectibles. Digital collectibles are crypto assets designed to be collected or used, potentially representing artwork, music, videos, trading cards, in-game items, or references to internet memes, characters, or trends.²⁵ Examples of Digital Collectibles include CryptoPunks, Chromie Squiggles, Bored Apes, Fan Tokens, WIF, VCOIN, meme coins. Their value is driven by popularity or scarcity, not managerial efforts, and they do not confer rights in a business enterprise.²⁶ They are not themselves securities, although the offer and sale of fractionalized interests in a digital collectible could constitute the offer and sale of a security.²⁷

Digital tools. Digital tools are crypto assets that provide functional utility, such as memberships, tickets, credentials, or domain names.²⁸ Examples of Digital Tools include ENS domains, access tokens, and ticketing non fungible tokens (NFTs) such as Ethereum Name Service domain names and CoinDesk "Microcosms" NFT Consensus tickets. Often non-transferable, they are acquired for use rather than investment and are not themselves securities.²⁹

Stablecoins. Stablecoins are crypto assets designed to maintain stable value relative to a reference asset.³⁰ Certain payment stablecoins are excluded from the definition of a security under the GENIUS Act, while others may be securities depending on their structure and surrounding facts.³¹

Digital securities. Digital securities are tokenized versions of financial instruments that fall within the statutory definition of "security."³² Tokenization does not alter the analysis. If an instrument has the economic characteristics of a security, it remains a security whether issued onchain or offchain.³³

Treatment of key crypto activities

Protocol mining. The interpretation confirms that mining activities on proof-of-work networks do not involve offers and sales of securities.³⁴ Miners contribute computational resources to secure the network and earn protocol-based rewards, which are treated as payments for services rather than profits derived from the essential managerial efforts of others.³⁵ The same conclusion applies to mining pools, where pool operators perform administrative or ministerial functions.³⁶

Protocol staking. The interpretation similarly provides that staking on proof-of-stake networks does not involve securities transactions.³⁷ This position is consistent with the SEC's prior statement that "participants in Protocol Staking Activities do not need to register with the Commission transactions under the Securities Act" and that, in such activities, service providers engage in "administrative or ministerial" rather than "managerial or entrepreneurial efforts."³⁸ This applies across staking models, including self-staking, third-party staking, custodial arrangements, and liquid staking. In each case, participants earn rewards for validating network activity, and service providers act in an administrative or ministerial capacity rather than providing essential managerial efforts.³⁹ This conclusion depends on service providers acting in a non-discretionary, agent-like capacity, without guaranteeing returns or exercising control over staking decisions. Arrangements that introduce discretion, fixed returns, or reliance on managerial efforts may fall outside the scope of the interpretation.⁴⁰ Ancillary services such as slashing coverage, early unbonding, alternative reward payment schedules and amounts, and the aggregation of digital commodities, when provided to owners and depositors in connection with protocol staking, were likewise characterized as administrative or ministerial in nature and not as essential managerial efforts.⁴¹

Staking receipt tokens. The interpretation provides that staking receipt tokens are not securities where they represent non-security crypto assets that are not subject to an investment contract and merely evidence deposited assets in a protocol-level staking arrangement.⁴² In these circumstances, the tokens do not themselves generate returns and do not involve reliance on the essential managerial efforts of others. However, where the underlying asset is a security or is subject to an investment contract, the staking receipt token will also be treated as a security.⁴³

Wrapping. The interpretation provides that "wrapping" arrangements, where crypto assets are deposited and one-to-one redeemable tokens are issued, do not involve the offer and sale of securities, so long as the tokens simply represent the underlying assets and do not provide any additional return or profit opportunity.⁴⁴ In such cases, the tokens are treated as receipts for non-security crypto assets and do not involve investment contracts, as the arrangement is administrative in nature and does not rely on the essential managerial efforts of others.⁴⁵ The interpretation clarifies that, in contrast, wrapping arrangements that merely create a one-to-one redeemable "receipt," without additional rights or profit expectations, do not give rise to such an investment contract. This interpretation builds on the SEC's view of custodial arrangements, in which it explained that "merely offering a more convenient way for investors to purchase, hold, and transfer the underlying" assets, without "anything resembling active management," does not involve managerial efforts.⁴⁶

Airdrops. The interpretation clarifies that airdrops do not involve securities transactions where recipients provide no consideration in exchange for the distributed assets.⁴⁷ In such cases, the "investment of money" prong of the Howey test is not satisfied, and registration is not required.⁴⁸ This analysis applies only where the airdrop is not conditioned on the provision of consideration by recipients.

Practical implications and next steps

The interpretation provides a clearer framework for analyzing when crypto assets and related activities fall within the federal securities laws, confirming that digital commodities, collectibles, and tools are not themselves securities while emphasizing that the investment contract analysis remains fact-specific and driven by issuer representations and market expectations. It also clarifies the treatment of key activities such as staking, wrapping, and airdrops, and underscores that the regulatory status of a crypto asset may evolve over time depending on whether an associated investment contract exists or ceases to exist. The interpretation is effective now that the interpretation has been published in the Federal Register on March 23, 2026 and will be applied by the SEC and CFTC in administering their respective statutes, and may be further refined through the ongoing public comment process as part of broader efforts under "Project Crypto" to provide clearer regulatory frameworks for crypto asset markets.

McDermott's FinTech and blockchain team can help you navigate the nuances and implications of this new Interpretation. McDermott's crypto-exclusive team spends 100% of its time on matters for the crypto and FinTech industries.

Vinicius Aquini, a law clerk in the New York office, contributed to this client alert.

Footnotes

1 SEC, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Securities Act Release No. 33-11412, Exchange Act Release No. 34-105020 (Mar. 17, 2026), available at sec.gov/files/rules/interp/2026/33-11412.pdf.

2 Id. at 9.

3 See, e.g., Commissioner Hester M. Peirce, Outdated: Remarks before the Digital Assets at Duke Conference (Jan. 20, 2023), available at sec.gov/newsroom/speeches-statements/peirce-remarks-duke-conference-012023#_ftn35; Commissioner Mark T. Uyeda, Remarks at the "SEC Speaks" Conference 2022, available at sec.gov/newsroom/speeches-statements/uyeda-speech-sec-speaks-090922; Commissioner Mark T. Uyeda, Remarks at the "SEC Speaks" Conference 2025, available at sec.gov/newsroom/speeches-statements/uyeda-remarks-sec-speaks-051925.

4 See SEC v. W.J. Howey Co., 328 U.S. 293 (1946); see also Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, Exchange Act Release No. 34-81207, 117 (July 25, 2017), sec.gov/litigation/investreport/34-81207.pdf.

5 See SEC, Framework for "Investment Contract" Analysis of Digital Assets (Apr. 3, 2019), available at sec.gov/about/divisions-offices/division-corporation-finance/framework-investment-contract-analysis-digital-assets.

6 See SEC v. LBRY, Inc., 639 F. Supp. 3d 211 (2022) (explaining that while the cryptocurrency at issue may have had some consumptive characteristics, "this did not change the fact that the objective economic realities of the offering established that it was offering it as a security because what the evidence in the record disclosed was that the defendant promoted the block chain token as an investment that would grow in value over time through the company's development of the defendant's network."). This decision is the only one of its kind that we are aware of; it has not been followed by the Second Circuit or any other court.

7 See Chairman Paul S. Atkins, American Leadership in the Digital Finance Revolution (July 31, 2025), available at sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125.

8 See Strengthening American Leadership in Digital Financial Technology (July 30, 2025), available at whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf.

9 See, e.g., SEC, Statement on Stablecoins (Apr. 4, 2025), sec.gov/newsroom/speeches-statements/statement-stablecoins-040425; SEC, Statement on Offerings and Registrations in Crypto Markets (Apr. 10, 2025), sec.gov/newsroom/speeches-statements/cf-crypto-securities-041025-offerings-registrations-securities-crypto-asset-markets; SEC, Statement on Certain Protocol Staking Activities (May 29, 2025), sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925; SEC, Statement on Crypto Asset Exchange-Traded Products (July 1, 2025), sec.gov/newsroom/speeches-statements/cf-crypto-asset-exchange-traded-products-070125; SEC, Statement on Certain Liquid Staking Activities (Aug. 5, 2025), sec.gov/newsroom/speeches-statements/corpfin-certain-liquid-staking-activities-080525; SEC, Statement on the Custody of Crypto Asset Securities by Broker-Dealers (Sept. 30, 2025), sec.gov/newsroom/speeches-statements/trading-markets-121725-statement-custody-crypto-asset-securities-broker-dealers; SEC, Statement on Tokenized Securities (Jan. 28, 2026), sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826-statement-tokenized-securities.

10 Id. at 25.

11 Id. at 25.

12 Id. at 25.

13 Id. at 26.

14 Id. at 27.

15 Id. at 28.

16 Id. at 29.

17 Id. at 29.

18 Id. at 30.

19 Id.

20 Id. at 13.

21 Id. at 16.

22 Id. at 16 n. 54.

23 Id. at 13.

24 Id. at 16.

25 Id. at 16.

26 Id. at 17.

27 Id. at 17-18.

28 Id. at 20.

29 Id. at 21.

30 Id. at 21.

31 Id. at 22-23.

32 Id. at 23.

33 Id. at 24.

34 Id. at 35.

35 Id. at 36.

36 Id. at 37.

37 Id. at 47.

38 See SEC, Statement on Certain Protocol Staking Activities (May 29, 2025), sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925.

39 See SEC, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Securities Act Release No. 33-11412, Exchange Act Release No. 34-105020 at 50 (Mar. 17, 2026), available at sec.gov/files/rules/interp/2026/33-11412.pdf.

40 Id. at 51.

41 Id. at 50-51.

42 Id. at 52. This interpretation is consistent with the SEC staff's prior Statement on Certain Liquid Staking Activities, which stated that "the offer and sale of Staking Receipt Tokens... do not involve the offer and sale of securities... unless the deposited Covered Crypto Assets are part of or subject to an investment contract," and that such tokens "merely evidence the deposited Covered Crypto Assets... and do not generate rewards." See Statement on Certain Liquid Staking Activities (Aug. 5, 2025), sec.gov/newsroom/speeches-statements/corpfin-certain-liquid-staking-activities-080525.

43 See SEC, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Securities Act Release No. 33-11412, Exchange Act Release No. 34-105020 at 53-54 (Mar. 17, 2026), available at sec.gov/files/rules/interp/2026/33-11412.pdf.

44 Id. at 54-55.

45 Id. at 57.

46 See Bear, Stearns & Co. Inc., SEC No-Action Letter (Jan. 28, 1992); HOLDRs, SEC No-Action Letter (Sept. 3, 1999).

47 See SEC, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Securities Act Release No. 33-11412, Exchange Act Release No. 34-105020 at 60-61 (Mar. 17, 2026), available at sec.gov/files/rules/interp/2026/33-11412.pdf.

48 Id. at 62.