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Source:SEC official website, Compiled by: Bitchain Vision
On Wednesday local time in the United States, Paul Atkins, chairman of the U.S. Securities and Exchange Commission (SEC), delivered a speech at the Philadelphia Federal Reserve Bank’s Fintech Conference.In his speech, Paul Atkins laid out his plan for a crypto “token taxonomy” to clearly distinguish which cryptocurrencies are securities.At the same time, he also said that the SEC is promoting digital asset supervision in a new way.Paul Atkins saidThe classification will be based on the Howey test.(Note: The Howey test originates from a 1946 U.S. Supreme Court decision and is often cited by the SEC to determine whether an asset constitutes an investment contract and thus is further considered a security.) Paul Atkins later added that cryptocurrencies can be part of investment contracts, but that does not mean they will always be so.He reiterated the SEC’s position thatTokenized securities, such as stocks that are converted into tokens on the blockchain, will still be considered securities.
The following is the full text of Paul Atkins’ speech.
Ladies and gentlemen, good morning.Thank you all for your wonderful introduction, and thank you for inviting me to continue discussing with you today how the United States will lead the next era of financial innovation.
When I recently talked about America’s leadership in the digital financial revolution, I described Project Crypto as the regulatory framework we built to match the energy of American innovators.Today, I would like to outline the next steps in this process.Fundamentally, this step is about basic fairness and common sense regarding the application of federal securities laws to cryptoassets and related transactions.
In the coming months,I expect the committee will consider establishing a token taxonomy based on the long-standing Howey analysis of investment contract securities, and recognize that there are limitations to our laws and regulations.
Much of what I will lay out next builds on the groundbreaking work of the Cryptocurrency Working Group led by Commissioner Hester Peirce.Commissioner Pierce has built a framework for coherent and transparent treatment of crypto-assets under federal securities laws, one that is grounded in economic realities rather than slogans or fears.Again, I share her vision.I value her leadership, hard work, and persistence in advancing these issues over the years.We have a long history of cooperation.I was absolutely delighted that she agreed to take on this task.
My speech will focus on three themes:First, clarify the importance of token classification;Second, how to apply the theory of Howey test, acknowledges the fact that the investment contract may be terminated;Third, what this might mean in practice for innovators, intermediaries and investors.
Before I begin, I also want to reiterate that while Commission staff are diligently drafting rule amendments, I fully support Congressional efforts to codify a comprehensive cryptocurrency market structure framework.My vision is consistent with legislation currently before Congress and is designed to complement, not replace, Congress’ important work.Commissioner Pierce and I have made supporting the work of Congress a top priority and will continue to do so.
It has been a pleasure working with Ms. Pham, Acting Chairman of the U.S. Commodity and Futures Trading Commission (CFTC), and I wish President Trump’s nominee for CFTC Chairman, Mike Selig, a smooth and speedy confirmation.Working with Mike over the past several months, I know we are both committed to helping Congress quickly advance nonpartisan market structure legislation to President Trump.The sound statutory provisions enacted by Congress are the most powerful tool to prevent unscrupulous regulators.
In order to satisfy my compliance staff, I would like to state here as usual: My comments represent my personal views as Chairman and do not necessarily represent the views of other Commissioners or the Committee as a whole.
A decade full of uncertainty
If you’re tired of hearing the question “Are crypto assets securities?” I totally understand.This issue is truly confusing because “crypto-asset” is not a term defined in federal securities laws.It is a technical description that describes how records are kept and value is transferred, but it says little about the legal rights attached to a particular instrument or the economic substance of a particular transaction, which are key to determining whether an asset is a security.
I thinkMost crypto tokens currently traded are not securities themselves.Of course, it is possible that certain tokens may be sold as part of investment contracts in securities offerings.This is not some radical statement, but a direct application of securities laws.The regulations defining securities enumerate common financial instruments such as stocks, notes, and bonds, and add a broader category: “investment contracts.”The latter term describes a relationship between parties rather than an irremovable label attached to a specific object.Unfortunately, this term is not clearly defined in the regulations.
Investment contracts can be performed or expire.They do not last forever just because the subject matter of an investment contract continues to trade on the blockchain.
However, over the past few years, too many people have insisted that once a token is tied to an investment contract, it is always a security.This mistaken view even goes further, assuming that every transaction thereafter, regardless of time and place, is a securities transaction.I have a hard time reconciling this view with the letter of the law, Supreme Court precedent, or common sense.
At the same time, developers, exchanges, custodians and investors have been in a fog, with no guidance from the SEC and obstacles at every turn.They see tokens that function as payment tools, governance tools, collectibles, or access keys.What they saw were hybrid designs that struggled to fit into any existing category.For a long time, all of these tokens were treated like common stocks.
This view is both unsustainable and unrealistic.It’s costly and yields little.This is unfair to market participants and investors, and is not in compliance with the law.It would also trigger a damaging race to transfer overseas.The reality is,If the United States insists on subjecting every innovation to securities laws, then these innovations will eventually migrate to jurisdictions that are more willing to distinguish between different types of assets and to establish rules in advance..
Instead, we will carry out our duties as a regulator.We need to draw clear boundaries and explain them in clear and understandable language.
Project Crypto’s Core Principles
Before I lay out my views on how securities laws apply to crypto tokens and trading, let me explain two basic principles that guide my thinking.
First, whether a stock exists in the form of a paper certificate, a record in a Depository Trust and Clearing Corporation (DTCC) account, or a token on a public blockchain, it is still a stock.Nor does a bond cease to be a bond just because its payment stream is tracked through a smart contract.No matter what form a security takes, its essence is still a security.This is easy to understand.
Second, economic realities matter more than labels.If something essentially represents a profit proposition for a business, and the promises attached to its issuance are based on the hard work of others, then even if it is called a “token” or “NFT,” that does not exempt it from current securities laws.Conversely, tokens that were once part of a financing deal do not magically convert into stock in the operating company.
These principles are not new.The Supreme Court has repeatedly emphasized that when judging whether securities laws apply, we should focus on the “substance” rather than the “form” of a transaction. These principles have long been rooted in this.What’s really new is the scale and speed with which asset types are evolving in these emerging markets.This pace requires us to be flexible and responsive to the urgent needs of market participants seeking guidance.
A coherent taxonomy of tokens
Based on the above background, I would like to outline my current thinking on various cryptoassets, but please note that this list is not complete.The framework is based on months of roundtables, meetings with more than a hundred market participants and hundreds of public written submissions.
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first, regarding the bills currently being considered by Congress,“Digital commodities” or “network tokens” are not securities in my opinion.The value of these crypto assets is essentially related to the programmed operation of a “functional” and “decentralized” crypto system, and the value generated thereby, rather than the expected profits derived from the core management work of others.
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Secondly, I think“Digital collectibles” are not securities.These cryptoassets are intended for collection and/or use and may represent or give the holder rights to digital expressions or references to works of art, music, videos, trading cards, in-game items, or online memes, people, current events, or trends.Buyers of digital collectibles do not expect to profit from the core curation efforts of others.
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third, in my opinion,“Digital instruments” are not securities.These cryptoassets have real-world functions, such as memberships, tickets, credentials, proof of ownership, or identity badges.Buyers of digital tools do not expect to profit from the core management work of others.
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Fourth, and the last point,“Tokenized securities” are and will remain securities.These cryptoassets represent ownership of financial instruments listed in the definition of “security” that are held on a cryptographic network.
Howey Test, Promise and Ending
While most cryptoassets are not securities themselves, they can be part of or subject to investment contracts.These cryptoassets come with certain representations or undertakings to perform the necessary management duties to satisfy the requirements of the Howey test.
The Howey test centers on investing money in a common cause with a reasonable expectation of profit from the core management work of others.Investors’ reasonable expectations of profits depend on statements or commitments made by the issuer regarding participation in core management.
In my view, these statements or commitments must clearly and unambiguously describe the core management activities that the issuer will undertake.
So, we can’t help but ask: “How can a non-security crypto-asset be separated from an investment contract?” The answer is simple but profound: the issuer either fulfills its representations or promises, fails to fulfill those conditions, or the contract is terminated for other reasons.
By way of background, in the rolling hills of Florida—land I’ve known since childhood—was once the home of William J. Howey’s citrus empire.In the early 20th century, Howey purchased more than 60,000 acres of undeveloped land and planted oranges and grapefruits near his mansion.His company sells orchard plots to individual investors and grows, picks and sells the fruit for them.
The Supreme Court reviewed Howey’s arrangement and established a test that defined an “investment contract” that would have consequences for generations to come.But today, the land of Howe tells a very different story.The mansion he built in 1925 in Lake County, Florida, still stands a century later, hosting weddings and other parties; and the citrus groves that once surrounded it are mostly gone, replaced by resorts, championship golf courses and residential complexes.This is an ideal place to retire.It’s hard to imagine that anyone today could stand among these fairways and dead ends and conclude that they constitute securities.Yet, over the years, we have watched the same testing standards being rigidly applied to digital assets that have undergone the same profound changes, but still bear the same label as when they were issued, as if nothing has changed.
The land surrounding the Howey mansion never became a security in itself.It becomes part of a security by virtue of a specific agreement, and when that agreement terminates, it ceases to be a security.Of course, even then, the land remained the same, while the businesses built on it changed radically.
Commissioner Pierce is keen to point out that while investment contracts may be involved in the early stages of a project’s token issuance, these commitments are not permanent.As the network matures, code is constantly released, control is gradually dispersed, and the role of the issuer gradually weakens or even disappears.At a certain stage, buyers no longer rely on the core management of the issuer, and today most token transactions no longer rely on the continued operation of a specific team.Simply put, a token does not remain a security just because it was part of an investment contract transaction any more than a golf course remains a security because it was part of a citrus grove investment plan.
Once the investment contract is deemed to have been fulfilled or expired on its own terms, the token may continue to trade, but these transactions are no longer considered “securities transactions” simply because of the token’s origin story.
As many of you know, IHas been a strong supporter of “super applications” in the financial sector, which enable the custody and trading of multiple asset classes under a single regulatory license.I have asked committee staff to prepare relevant recommendations for consideration,Consider allowing tokens tied to investment contracts to be traded on non-SEC regulated platforms, including intermediaries registered with the CFTC or registered through state regulators.While capital formation should still be regulated by the SEC, we should not hinder innovation and investor choice by requiring underlying assets to trade within a single regulatory environment.
Importantly, this does not mean that fraud has suddenly become acceptable or that the Commission is less concerned.Anti-fraud provisions still apply to misrepresentations and omissions in connection with the sale of an investment contract even if the underlying assets are not themselves securities.Of course, if tokens are commodities in interstate commerce, the CFTC also has the authority to take anti-fraud and anti-manipulation measures against misconduct in the trading of these assets.
This means we will align our rules and enforcement with the economic reality that investment contracts can be terminated and networks can operate independently.
Cryptocurrency Regulation
As envisaged in the legislation currently before Congress, I hopeIn the coming months, the Commission could also consider introducing a series of exemptions to create a tailor-made issuance mechanism for crypto-assets that are or are subject to investment contracts..
I have asked staff to prepare recommendations for the Committee’s consideration that are designed to promote capital formation and innovation while ensuring investor protection.
By streamlining processes, innovators in the blockchain space can focus on product development and user engagement rather than grappling with the intricacies of regulatory uncertainty.Additionally, this approach fosters a more inclusive and dynamic ecosystem—one where smaller, less resource-intensive projects are free to experiment and thrive.
Of course, we will continue to work closely with our counterparts at the CFTC, bank regulators, and Congress to ensure that non-security cryptoassets have an appropriate regulatory framework.Our goal is not to do this to expand the SEC’s jurisdiction, but to promote capital formation while protecting investor rights.
We will continue to listen to all opinions.The Cryptocurrency Working Group and department staff have held multiple roundtables and reviewed numerous written submissions.But we need more.We need feedback from investors, developers who are worried about getting their code online, and feedback from traditional financial institutions who are eager to participate in the on-chain market but don’t want to violate the rules set in the paper era.
Finally, as I mentioned before, we will continue to support Congressional efforts to codify a sound market structure framework.Although the Commission is able to provide reasonable opinions under the current legal framework, it may still change its position in the future.That’s why it’s critical to create legislation that meets actual needs – which is why I’m pleased to support President Trump’s goal of passing cryptocurrency market structure legislation by the end of the year.
Integrity, transparency and the rule of law
Now, let me be clear about what this framework does not mean.It does not mean that the SEC will relax enforcement.Fraud is fraud.While the SEC is responsible for protecting investors from securities fraud, the federal government also has numerous other regulatory agencies that are fully capable of regulating and combating illegal conduct.That is, if you raise money by promising to build a network and then abscond with the money, we will hold you fully accountable to the fullest extent of the law.
This framework reflects our commitment to integrity and transparency.We should offer more than a shrug, a threat or a subpoena to entrepreneurs who want to start a business in the United States and are willing to abide by clear rules.For investors trying to differentiate between buying tokenized stocks and buying video game collectibles, we should have more to offer than the intricacies of enforcement actions.
The most important thing is,This framework reflects the SEC’s modesty about its own authority.Congress created the securities laws to address a specific problem—situations in which people entrust their money to others based on their trust in their integrity and abilities.These laws are not intended to be a universal code governing new forms of value, digital or otherwise.
Contracts, freedom and responsibility
Let me end with Commissioner Pierce’s opening remarks when he delivered his “New Paradigm” address this past May, by reminding everyone of our history.She spoke of an American patriot who, at great personal risk and nearly losing his life, upheld the principle that free people should not be governed by arbitrary decrees.
Thankfully, our jobs don’t require that kind of sacrifice.But the principle remains the same.In a free society, the rules governing economic life should be knowable, reasonable, and subject to appropriate constraints.We stray from this core principle when we abuse securities laws to apply more than they should, when we treat every innovation as suspect.We respect this principle when we recognize the limits of our power, when we acknowledge that investment contracts can be terminated and that networks can exist on their own merits.
The SEC’s adoption of a reasonable approach to cryptocurrencies will not in itself determine the fate of the market, nor the fate of any particular project.The market will make the final decision.But it will help ensure that America remains a place where people can experiment and learn, fail and succeed, under rules that are both strict and fair.
This is what “The Crypto Project” is all about.This is also the role of the committee.As President, I make a solemn pledge to you today: We will never let fear of the future constrain us and keep us trapped in the past.We also never forget that behind every debate about tokens, there are real people—entrepreneurs working to build solutions, working people working to invest in the future, and Americans working to share in the fruits of prosperity.The committee’s job is to serve all three.
Thank you and I look forward to continuing to communicate with you all in the coming months.
