SEC and CFTC Release First-Ever Crypto Classification Framework 

The five categories are digital commodities, digital collectibles, digital tools, stablecoins, and digital securities. Of those five, only digital securities are automatically treated as securities under federal law. Everything else depends on how the asset works, how it is marketed, and what promises, if any, were made to buyers.

That single distinction carries enormous weight. Bitcoin, Ethereum, Solana, and Dogecoin all qualify as digital commodities under the new framework. In addition so do roughly 70 percent of all digital assets currently traded, according to the guidance. Digital commodities fall primarily under the CFTC’s watch, not the SEC’s. Jones Day notes that this clearer boundary should help the CFTC pursue fraud cases more aggressively, particularly involving volatile meme coins, and reduce the messy overlap that has led to both agencies pursuing the same targets simultaneously in recent years.

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The guidance uses a legal standard called the Howey test to determine whether a given crypto asset crosses the line into security territory. The test, developed decades before crypto existed, asks whether buyers are putting money into a common venture and expecting profits based on someone else’s efforts. Jones Day explains that a crypto asset can enter security status — what the guidance calls an “on-ramp” — when an issuer makes promises or representations that lead buyers to expect profits from the issuer’s work. Crucially, that same asset can later exit security status — the “off-ramp” — once the issuer has delivered on those promises, or has clearly and publicly failed to do so and buyers no longer have any reasonable expectation of profit.

Related: CFTC Unveils New Task Force to Focus on AI, Crypto, Prediction Markets

This concept echoes a view first laid out in 2018 by a senior SEC official, per Jones Day. As a crypto network becomes decentralized enough, securities disclosure requirements become less relevant because buyers can no longer reasonably tie their profit expectations to any single group’s efforts.

The guidance also settles several questions that have long created friction for developers and participants in crypto markets. Mining, staking, wrapping non-security assets, and certain airdrops do not constitute the offer and sale of securities. That’s a significant green light for common activities that had previously existed in a gray area.

For federal prosecutors, the guidance sends a clear directional signal as well. Jones Day notes that while the Justice Department is not bound by the guidance, it will likely shift further toward wire fraud and commodities fraud charges when pursuing digital asset cases, rather than securities fraud, which requires proving the asset in question was a security in the first place.

The guidance is not law. Congress is still debating comprehensive crypto market structure legislation, including the CLARITY Act and other pending bills. Jones Day points out that if those legislative efforts stall, this interpretive framework may become the primary reference point for the industry for the foreseeable future.

For anyone operating in the crypto space, whether issuing tokens, running a trading platform, or advising clients, Jones Day recommends a close review of token structures and marketing materials in light of the new framework.