On March 17, the U.S. Securities and Exchange Commission issued a new interpretation explaining how federal securities laws apply to different digital assets and related transactions, issued alongside CFTC guidance. The interpretation outlines token-type classifications, when a digital asset may qualify as a securities offering, and criteria for commonly disputed activities such as airdrops, protocol mining, protocol staking, and wrapping. It replaces the 2019 investment contract framework and becomes effective on March 23.
Five token types are identified: Digital Commodities, including Bitcoin and most digital assets, are not securities; Digital Collectibles, including NFTs and meme coins, are not securities; Digital Tools, such as memberships, tickets, and IDs, perform practical functions and are not securities. Stablecoins issued by a licensed issuer are not securities; Digital Securities, such as stock tokenizations, are securities. Moreover, the interpretation notes that a token’s securities status can evolve over its lifecycle, and if it ceases to be a security, regulatory jurisdiction may shift from the SEC to the CFTC. It concludes that protocol mining and protocol staking do not create securities since rewards derive from the contributor’s own effort, not others’ efforts.
Wrapping depends on the underlying asset’s characteristics; if the underlying token has securities characteristics, the wrapping token’s issuance and sale would be subject to securities laws. Finally, airdrops of non-securities are not securities offerings. In addition, regulators say that beyond the token transactions addressed, many other areas in the market will require securities-status determinations, and efforts to provide regulatory clarity in those areas using this interpretation’s logic will be needed.
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