SEC Chairman's Speech: Four Classifications of Tokens

Author | Paul S. Atkins, Chairman of the SEC

Compilation | Luffy, Foresight News

This article was published on November 12, 2025, and the content does not represent Wu's views and does not constitute any investment or financial advice. Readers are advised to strictly comply with the laws and regulations of their location.

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Ladies and gentlemen, good morning! Thank you for your warm introduction, and thank you for inviting me here today. We will continue to discuss how the United States is leading the next era of financial innovation.

Recently, when discussing the leadership of the United States in the digital financial revolution, I described “Project Crypto” as a regulatory framework established to match the vitality of American innovators (Note: the SEC launched the Project Crypto initiative on August 1 of this year, aiming to update securities rules and regulations to enable on-chain functionality in the U.S. financial markets). Today, I would like to outline the next steps in this process. At the core of this step is the adherence to fundamental fairness and common sense principles in applying federal securities laws to crypto assets and related transactions.

In the coming months, I expect the SEC (Securities and Exchange Commission) to consider establishing a token classification system based on the long-established Howey investment contract securities analysis, while acknowledging the applicable boundaries of our laws and regulations.

The content I am about to elaborate on is largely based on the groundbreaking work conducted by the cryptocurrency task force led by Commissioner Hester Peirce. Commissioner Peirce has constructed a framework aimed at coherent and transparent securities law regulation of crypto assets based on economic substance rather than slogans or panic. I reiterate my agreement with her vision. I value her leadership, hard work, and the persistence she has shown over the years in advancing the relevant issues. I have worked with her for a long time and am very pleased that she has agreed to take on this task.

My speech will revolve around three themes: first, the importance of a clear token classification system; second, the applicable logic of the Howey test, acknowledging the fact that investment contracts may terminate; third, what this means in practice for innovators, intermediaries, and investors.

Before we begin, I would like to reiterate: although SEC staff are diligently drafting the rule amendments, I fully support Congress's efforts to incorporate a comprehensive cryptocurrency market structure framework into statutory law. My vision aligns with the legislation currently under consideration by Congress and aims to complement rather than replace Congress's critical work. Commissioner Peirce and I have made supporting congressional action a priority and will continue to do so.

It has been a pleasure working with Acting Chair Pham, and I wish President Trump's nominee for Chair of the Commodity Futures Trading Commission (CFTC), Mike Selig, a smooth and swift confirmation process. My experience working with Mike over the past few months has convinced me that we are all committed to assisting Congress in quickly advancing the bipartisan market structure legislation and submitting it for President Trump's signature. There is nothing more effective in preventing regulatory abuse than sound statutory language crafted by Congress.

To reassure my compliance team, I hereby make a standard disclaimer: my statements represent my personal views as the chair and do not necessarily reflect the overall position of other commissioners or the SEC.

A decade full of uncertainty

If you are tired of hearing the question “Are crypto assets considered securities?”, I completely understand. The reason this question is confusing is that “crypto assets” is not a term defined by federal securities law; it is a technical description that only explains the way records are kept and value is transferred, yet it hardly mentions the legal rights attached to specific instruments or the economic substance of specific transactions, both of which are crucial for determining whether an asset is a security.

I believe that most cryptocurrencies traded today are not securities themselves. Of course, a particular token may be sold as part of an investment contract in a securities issuance, which is not a radical view but a direct application of securities law. The statutory definition of securities lists common instruments such as stocks, notes, and bonds, and adds a broader category: “investment contracts.” The latter describes the relationship between the parties involved rather than a permanent label attached to a specific item. Unfortunately, the statute does not define it either.

Investment contracts can be performed and can also be terminated. It cannot be assumed that investment contracts are always valid just because the underlying assets of the investment contract are still being traded on the blockchain.

However, in recent years, too many people have advocated the viewpoint that if a certain token was once the subject of an investment contract, it is forever a security. This flawed viewpoint even further presumes that every subsequent transaction of that token (regardless of where or when) is a securities transaction. I find it difficult to reconcile this viewpoint with legal provisions, Supreme Court precedents, or common sense.

At the same time, developers, exchanges, custodians, and investors have been groping in the fog without guidance from the SEC, facing obstacles instead. The tokens they see serve as payment tools, governance tools, collectibles, or access keys, while some are of mixed design, making them difficult to classify into any existing category. However, for a long time, the regulatory stance has treated all these tokens as equivalent to securities.

This viewpoint is neither sustainable nor realistic. It incurs enormous costs with minimal returns; it is unfair to market participants and investors, inconsistent with the law, and has triggered a wave of offshore migration among entrepreneurs. The reality is that if the United States insists on forcing every blockchain innovation to navigate the minefield of securities law, these innovations will migrate to jurisdictions that are more willing to distinguish between different types of assets and more willing to establish rules in advance.

On the contrary, we will do what regulators should do: set clear boundaries and explain them in plain language.

The core principles of Project Crypto

Before explaining my views on the applicability of securities law to cryptocurrencies and transactions, I would like to first state two fundamental principles that guide my thinking.

First, regardless of whether stocks are presented in the form of paper certificates, recorded in accounts at a depository trust and clearing company (DTCC), or represented as tokens on a public blockchain, they are essentially still stocks; bonds do not cease to be bonds simply because their payment flows are tracked via smart contracts. Regardless of the form in which they are presented, securities are always securities. This point is easy to understand.

Second, economic substance over labels. If an asset essentially represents a claim to profits of a business and is sold with a promise that relies on the core managerial efforts of others, then regardless of whether it is called a “token” or “non-fungible token (NFT),” it cannot be exempt from current securities laws. Conversely, the fact that a token was once part of a financing transaction does not mean it will magically transform into stock of an operating company.

These principles are not new. The Supreme Court has repeatedly emphasized that, in determining the applicability of securities laws, one should focus on the substance of the transaction rather than its form. The new change lies in the scale and speed of the evolution of asset types in these new markets. This pace requires us to respond flexibly to the urgent demands of market participants for guidance.

A coherent token classification system

Based on the above background, I would like to outline my current views on various types of crypto assets (please note that this list is not exhaustive). This framework has been formed based on months of roundtable discussions, over a hundred meetings with market participants, and hundreds of public written opinions.

Firstly, regarding the bill currently under review by Congress, I believe that “digital commodities” or “virtual tokens” are not securities. The value of these crypto assets is essentially related to the programmatic operation of a “well-functioning” and “decentralized” crypto system, and is generated from that, rather than arising from the expected profits brought by the critical management work of others.

Secondly, I believe that “digital collectibles” are not securities. These crypto assets are intended for collection and use, and may represent or confer upon the holder rights to digital expressions or references of artworks, music, videos, trading cards, in-game items, or internet memes, characters, current events, and trends. Buyers of digital collectibles do not expect to profit from the daily management efforts of others.

Third, I believe that “digital instruments” are not securities. These crypto assets have practical functions, such as membership, tickets, vouchers, proof of ownership, or identity badges. Buyers of digital instruments do not expect to profit from the everyday management of others.

Fourth, “tokenized securities” are now and will continue to be securities. These crypto assets represent ownership of financial instruments listed in the definition of “securities”, which are maintained on a crypto network.

Howey Test, Commitment and Termination

Although most crypto assets are not securities themselves, they may be part of an investment contract or be bound by an investment contract. Such crypto assets often come with specific representations or promises that the issuer is required to fulfill management responsibilities to meet the requirements of the Howey test.

The core of the Howey test is: investing money in a common enterprise and reasonably expecting to profit from the efforts of others in core management. The purchaser's profit expectation depends on whether the issuer has made statements or commitments to engage in core management efforts.

In my opinion, these statements or commitments must clearly and unambiguously state the core management efforts that the issuer will undertake.

The next question is: how do non-securities crypto assets separate from investment contracts? The answer is simple yet profound: the issuer has either fulfilled the declaration or commitment, or failed to fulfill it, or the contract has been terminated for other reasons.

To help everyone understand better, I would like to talk about a place in the rolling hills of Florida. I have been very familiar with it since childhood; it was once the site of the William J. Howey citrus empire. In the early 20th century, Howey purchased over 60,000 acres of undeveloped land and planted orange and grapefruit groves next to his mansion. His company sold the orchard plots to individual investors and was responsible for growing, harvesting, and selling the fruit for them.

The Supreme Court reviewed Howey's arrangement and established a test standard for defining investment contracts that has influenced generations. However, today, Howey's land has undergone a dramatic transformation. The mansion he built in 1925 in Lake County, Florida still stands a century later, hosting weddings and other events, while the surrounding citrus groves have mostly disappeared, replaced by resorts, championship golf courses, and residential areas, turning it into an ideal retirement community. It's hard to imagine that anyone standing on these fairways and cul-de-sacs today would think they constitute securities. Yet, over the years, we have seen the same test rigidly applied to digital assets, which have also undergone similarly profound transformations, yet still carry the labels from when they were issued, as if nothing has changed.

The land surrounding the Howey mansion was never a security; it became the subject of an investment contract through specific arrangements, and when that arrangement ended, it was no longer bound by the investment contract. Of course, although the business on the land underwent a complete transformation, the land itself remained unchanged.

Commissioner Peirce's observation is very accurate: the initial issuance of a project's tokens may involve investment contracts, but these commitments are not forever valid. The network will mature, the code will be implemented, control will be decentralized, and the role of the issuer will weaken or even disappear. At some point, buyers no longer rely on the core management efforts of the issuer, and most token transactions are no longer based on the reasonable expectation that “a certain team is still in charge.” In short, a token will not remain a security just because it was once part of an investment contract transaction, just as a golf course will not become a security just because it was once part of a citrus grove investment plan.

When an investment contract can be recognized as having been fulfilled or terminated according to its terms, the tokens may continue to trade, but these trades will not constitute securities solely because of the tokens' origin story.

As many of you know, I strongly support the concept of super apps in the financial sector, which allow for the custody and trading of multiple asset classes under a single regulatory license. I have asked SEC staff to prepare relevant recommendations for SEC consideration: to allow tokens associated with investment contracts to be traded on platforms not regulated by the SEC, including intermediaries registered with the Commodity Futures Trading Commission (CFTC) or subject to state regulatory frameworks. While financing activities should still be regulated by the SEC, we should not stifle innovation and investor choice by requiring that the underlying assets can only be traded in a specific regulatory environment.

It is important to note that this does not mean that fraudulent behavior suddenly becomes acceptable, or that the SEC's attention has waned. Anti-fraud provisions still apply to false statements and omissions related to the sale of investment contracts, even if the underlying asset itself is not a security. Of course, regarding the classification of these tokens as commodities in state trade, the Commodity Futures Trading Commission (CFTC) also has anti-fraud and anti-manipulation authority to take action against misconduct in the trading of these assets.

This means that our rules and enforcement will be consistent with the economic substance of “investment contracts may be terminated, and the network can operate independently.”

Cryptocurrency regulatory actions

In the coming months, as envisioned in the bills currently under consideration by Congress, I hope the SEC will also consider a range of exemptions to establish a tailored issuance system for crypto assets that are part of or subject to investment contracts.

I have asked the staff to prepare relevant recommendations for SEC review, aimed at promoting financing, fostering innovation, while ensuring investor protection.

By simplifying this process, innovators in the blockchain space can focus their efforts on development and user interaction, rather than navigating the maze of regulatory uncertainty. Furthermore, this approach will foster a more inclusive and vibrant ecosystem, allowing smaller projects with more limited resources to experiment freely and thrive.

Of course, we will continue to work closely with the Commodity Futures Trading Commission (CFTC), banking regulators, and the corresponding departments of Congress to ensure that non-securities crypto assets have an appropriate regulatory framework. Our goal is not to expand the jurisdiction of the SEC, but to allow financing activities to thrive while ensuring that investors are protected.

We will continue to listen to all voices. The cryptocurrency working group and relevant departments have held multiple roundtable meetings and reviewed a large number of written opinions, but we still need more feedback. We need feedback from investors, developers concerned about code delivery, and traditional financial institutions eager to participate in the on-chain market but reluctant to violate rules established for the paper era.

Finally, as I mentioned earlier, we will continue to support Congress's efforts to incorporate a comprehensive market structure framework into statutory law. While the SEC can provide reasonable opinions under current law, the future SEC may still change direction. This is why a tailored bill is so important, and why I am pleased to support President Trump’s goal of introducing a cryptocurrency market structure bill by the end of the year.

Integrity, understandability, and rule of law

Now, I want to make it clear what this framework does not include. It is not a commitment by the SEC to relax enforcement; fraud is fraud. Although the SEC protects investors from securities fraud, there are many other federal regulatory agencies capable of overseeing and preventing illegal activities. That said, if you raise funds by building a network through promises and then abscond with the money, we will definitely find you and take the most severe action against you according to the law.

This framework is a commitment to integrity and transparency. For entrepreneurs who wish to start a business in the U.S. and are willing to adhere to clear rules, we should not just respond with shrugs, threats, or subpoenas; for investors trying to differentiate between purchasing tokenized stocks and buying game collectibles, we should not only provide a complex web of enforcement actions.

Most importantly, this framework reflects a humble understanding of the SEC's own boundaries of authority. Congress enacted the securities laws to address specific issues — namely, situations where people entrust their funds to others based on their integrity and ability. These laws are not intended to be a universal charter for regulating all new forms of value.

Let me conclude with a historical review from the speech delivered by Commissioner Peirce in May of this year. She evoked the spirit of an American patriot who, at great personal risk and even at the brink of death, defended the principle that free people should not be governed by arbitrary edicts.

Fortunately, our work does not require such sacrifices, but the principle is the same. In a free society, the rules governing economic life should be known, reasonable, and appropriately constrained. When we extend securities law beyond its proper scope, when we presume every innovation to be guilty, we deviate from this core principle. When we acknowledge the boundaries of our own authority, when we recognize that investment contracts may terminate and networks can operate independently based on their own value, we are practicing this principle.

The SEC's reasonable regulatory approach to cryptocurrencies will not itself determine the fate of the market or any particular project; that will be determined by the market. However, it will help ensure that the United States remains a place where people can experiment, learn, fail, and succeed under firm and fair rules.

This is the significance of Project Crypto and the goal that the SEC should pursue. As the Chair, I pledge to you today: we will not let the fear of the future keep us trapped in the past; we will not forget that behind every debate related to tokens are real people — entrepreneurs working hard to build solutions, workers investing in the future, and Americans striving to share in the prosperity of this nation. The role of the SEC is to serve these three groups of people.

Thank you all, looking forward to continuing the dialogue with you in the coming months.