SEC Redraws Crypto Map as Tokens Break Free of Securities Rules

For all its technological foundations, the crypto sector was also built upon a parallel language embraced by its adherents. Beneath the memes and market noise lies a dense web of cryptographic constructs and economic experiments.

This has led to an industry lexicon that is part engineering argot and part digital mysticism, encompassing terms like staking ecosystems, blockchain layers, zero-sum-proofs, liquidity pools, airdrop poachers, stablecoin sandwiches, ponzinomics, recursive yield, MEV, WAGMI, HODL, and many more terms rendered opaque to the uninitiated.

It has also had the unintended consequence of making digital assets increasingly hard to classify within traditional securities and commodities frameworks, leading to a decade-plus of regulatory opacity in the U.S.

But that is all beginning to change.

On Wednesday (Nov. 12), the U.S. Securities and Exchange Commission (SEC) Chairman Paul Atkins gave a speech at the Federal Reserve Bank of Philadelphia attempting to clarify the agency’s approach to the taxonomical and political bottlenecks keeping crypto markets in regulatory limbo.

Atkins began by acknowledging the fog that has long shrouded crypto regulation: “If you are tired of hearing the question ‘Are crypto assets securities?,’ I very much sympathize.”

Atkins explicitly said that many tokens trading today are not securities and called the overly broad prior approach “not sustainable or practicable.” He pointed out that the term “crypto asset” has no statutory meaning under the securities laws; it simply describes a technological attribute.

“Economic reality trumps labels. Calling something a ‘token’ or an ‘NFT’ does not exempt it from the current securities laws if it in substance represents a claim on the profits of an enterprise and is offered with the sorts of promises based on the essential efforts of others. Conversely, the fact that a token was once a part of a capital-raising transaction does not magically convert that token into a stock of an operating company,” Atkins explained.

That established the prelude to the SEC head’s main structural contribution: a proposed token taxonomy on which a policy framework could be constructed and implemented.

Read more: From Bitcoin Maxis to Yield Farmers: A Crypto Archetype Glossary

Moving From Uncertainty to Taxonomy

The SEC chairman’s speech comes just days after lawmakers secured bipartisan agreement for a crypto market structure draft bill on Monday (Nov. 10).

The draft legislation assigned primary jurisdiction over “transactions in digital assets” to the Commodity Futures Trading Commission (CFTC), empowering the agency to regulate such transactions and set core principles for digital commodity exchanges, brokers and dealers, while leaving the role of the SEC comparatively muted.

As the SEC seeks to delineate its oversight responsibilities for digital assets, Atkins laid out four categories: (1) “digital commodities” or “network tokens,” which, if decentralized and functional, are in his view not securities; (2) “digital collectibles,” likewise not securities; (3) “digital tools,” i.e., functional tokens for membership, credentials or titles, also not securities; and (4) “tokenized securities,” which are securities and must be treated as such.

By calibrating this taxonomy, it could create a clearer regulatory path for firms and investors compelled for too long to guess whether a particular token is a securities instrument, a guess which often defaulted to “yes” under prior SEC stances.

On custody and trading, Atkins emphasized “choice.” He reaffirmed the importance of self-custody as a core American value even as many investors will rely on intermediaries. He also endorsed the emerging concept of “super-apps”: platforms that offer custody, trading, lending, staking, tokenized securities and non-security tokens under one roof.

Read more: Congress Puts SEC and CFTC on Collision Course Over Crypto

Strategic Implications for the Road Ahead

If the SEC taxonomy is adopted, most tokens may escape classification as securities, ultimately reducing burdens of registration, disclosure, and broker-dealer oversight. The speech signals a marked departure from earlier SEC postures, which were traditionally reliant on enforcement, securities treatment of tokens, and regulatory uncertainty.

For the U.S. digital-asset ecosystem, this may be the beginning of a new chapter. But chapters are written in legislative halls, rule-making dockets and enforcement decisions, not just speeches. Many of the actions are not yet codified; and the power of how the taxonomy will be operationalized remains to be tested.

As Dan Boyle, partner at Boies Schiller Flexner, told PYMNTS’ Karen Webster in an earlier interview, crypto is not getting a get-out-of-jail-free card.