SEC Chair's Latest Speech: Farewell to the Chaotic Decade, Cryptocurrency Regulation Enters an Era of Clarity

Original Article Title: The Securities and Exchange Commission‘s Approach to Digital Assets: Inside 「Project Crypto」

Original Article Author: Paul S. Atkins, Chairman of the U.S. Securities and Exchange Commission

Original Article Translation: Luffy, Foresight News

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

Recently, when discussing the U.S.'s leadership in the digital financial revolution, I referred to 「Project Crypto」 as the regulatory framework we have established to match the dynamism of American innovators (note, the U.S. Securities and Exchange Commission launched the Project Crypto initiative on August 1 of this year to update securities rules and regulations to enable the U.S. financial markets to achieve chainization). Today, I would like to outline the next steps of this process. At the core of this step is applying fundamental fairness and common-sense principles in the process of applying federal securities laws to crypto assets and related transactions.

In the coming months, I anticipate that the SEC (U.S. Securities and Exchange Commission) will consider establishing a token taxonomy based on the longstanding Howey investment contract securities analysis, while recognizing the boundaries of our legal framework.

What I am about to elaborate on is largely based on the groundbreaking work of Commissioner Hester Peirce's cryptocurrency special working group. Commissioner Peirce has constructed a framework aimed at providing consistent, transparent securities law regulation of crypto assets based on economic substance rather than slogans or panic-driven sentiments. I reaffirm here that I endorse her vision. I value her leadership, hard work, and unwavering dedication over the years in advancing these issues. I have worked closely with her for a long time and am pleased she has agreed to take on this task.

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

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

It has been a great pleasure collaborating with Acting Chairman Pham. I wish a speedy confirmation for Mike Selig, President Trump's nominee for the Commodity Futures Trading Commission (CFTC) Chair. The past few months working with Mike have convinced me that we are both committed to assisting Congress in swiftly advancing bipartisan market structure legislation and submitting it for President Trump's signature. Nothing is more effective in preventing regulatory overreach than sound legislative text crafted by Congress.

To reassure my compliance team, I hereby make a routine disclaimer: My remarks represent only my personal views as Chairman and do not necessarily reflect the views of other Commissioners or the SEC as a whole.

A Decade of Uncertainty

If you are tired of hearing the question, "Are crypto assets securities?" I completely understand. The confusion around this question stems from the fact that "crypto asset" is not a term defined in federal securities law; it is merely a technical description that speaks to the way records are kept and value is transferred, with almost no mention of the legal rights inherent in a particular instrument or the economic substance of a particular transaction, which are key to determining whether an asset is a security.

I believe that the majority of cryptocurrencies being traded today are not securities. Of course, a particular token may have been sold as part of an investment contract in a securities offering, which is not a radical view but a direct application of securities law. The statutory definition of a security lists common instruments such as stocks, notes, bonds, and adds a more expansive category: "investment contract". The latter describes a relationship between parties rather than a label permanently affixed to an item. Unfortunately, the statute does not define this either.

An investment contract can be fulfilled, and it can also cease to exist. Just because the subject matter of an investment contract continues to be traded on a blockchain does not mean the investment contract remains in perpetuity.

However, over the past few years, too many have espoused the view that if a token was once part of an investment contract, it is forever a security. This flawed view goes so far as to posit that every subsequent trade of that token (wherever and whenever) is a securities transaction. I find it hard to reconcile this view with statutory language, Supreme Court precedent, or common sense.

Meanwhile, developers, exchanges, custodians, and investors have been navigating in the dark, obstructed rather than guided by the SEC. The tokens they see serve as payment instruments, governance tools, collectibles, or access keys, while some are hybrids that defy categorization. Yet, the regulatory posture has long treated all such tokens as securities.

This viewpoint is neither sustainable nor practical. It entails significant costs but yields minimal results, is unfair to market participants and investors, is at odds with the law, and has triggered a wave of entrepreneurs moving offshore. The reality is: if the United States insists on every on-chain innovation navigating the securities law minefield, these innovations will move to jurisdictions that are more willing to differentiate between asset types and more willing to set rules in advance.

Instead, we will do what regulators should do: draw clear lines and explain them in plain language.

Core Principles of Project Crypto

Before elaborating on my view of how securities laws apply to cryptocurrency and transactions, I would like to first explain two fundamental principles that guide my thinking.

First, whether a stock is represented by a paper certificate, a Depository Trust & Clearing Corporation (DTCC) account, or in token form on a public blockchain, it is fundamentally still a stock; a bond does not cease to be a bond just because its payment flows are tracked through smart contracts. Regardless of its form of representation, a security is always a security. This point is easy to understand.

Second, substance over form. If an asset fundamentally represents a claim on a company's profits and is sold with the promise of reliance on the core managerial efforts of others, then even if called a "token" or a "non-fungible token (NFT)," it cannot be exempt from existing securities laws. Conversely, a token that was part of a fundraising transaction does not magically transform into equity in the operating company.

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

Coherent Token Classification System

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

· First, with regard to the legislation currently under consideration in Congress, I believe "digital commodities" or "network tokens" are not securities. The value of these crypto assets is inherently tied to the programmatic operation of a "functioning" and "decentralized" cryptographic system and arises from that, rather than from the expected efforts of others in critical management roles.

· Secondly, I believe that "Digital Collectibles" are not securities. These cryptographic assets are designed for people to collect and use, and may represent or grant the holder rights to digital expressions or references to art, music, video, trading cards, in-game items, or online memes, personalities, current events, trends. Purchasers of digital collectibles do not expect to profit from the everyday managerial efforts of others.

· Third, I believe that "Digital Utilities" are not securities. These cryptographic assets have a real-world use case, such as membership access, tickets, credentials, proof of ownership, or identity badges. Purchasers of digital utilities do not expect to profit from the everyday managerial efforts of others.

· Fourth, "Tokenized Securities" are currently and will continue to be securities. These cryptographic assets represent ownership in the financial instruments listed in the "security" definition, which are maintained on a blockchain network.

Howey Test, Representations, and Termination

While most cryptographic assets themselves are not securities, they may become part of an investment contract or be bound by an investment contract. Such cryptographic assets typically come with specific representations or commitments, and the issuer is required to fulfill managerial responsibilities to meet the requirements of the Howey Test.

The core of the Howey Test is: investing money in a common enterprise with a reasonable expectation of profits to be derived primarily from the efforts of others. The purchaser's expectation of profits depends on whether the issuer has made representations or commitments to undertake the necessary managerial efforts.

In my view, these representations or commitments must be explicit and unambiguous about the issuer's intended managerial efforts.

The next question is: how can non-security cryptographic assets be separated from an investment contract? The answer is simple yet profound: the issuer either fulfills the representations or commitments, fails to do so, or the contract is terminated for other reasons.

To help illustrate, I would like to talk about a place in the rolling hills of Florida. I am very familiar with the area from my childhood; it was once the site of the William J. Howey citrus empire. In the early 20th century, Howey acquired over 60,000 acres of undeveloped land, planting orange and grapefruit groves beside his mansion. His company sold parcels of the orchard to individual investors, handling the cultivation, harvesting, and sale of the fruit for them.

The Supreme Court reviewed Howey's arrangement and established the test standard for defining an investment contract, a standard that has influenced generations. But today, Howey's land has undergone significant transformation. His mansion built in 1925 in Lake County, Florida, still stands a century later, hosting weddings and other events, while much of the citrus groves that once surrounded it have given way to resorts, championship-level golf courses, and residential areas, turning it into an ideal retirement community. It is hard to imagine that someone standing on these fairways and cul-de-sacs today would consider them securities. However, over the years, we have seen the same test rigidly applied to digital assets, which have also undergone a similar profound transformation but still carry the label from their issuance, as if nothing has changed.

The land surrounding the Howey Mansion was never itself a security; it became the subject of an investment contract through a specific arrangement, and when that arrangement ends, it is no longer bound by the investment contract. Of course, even though there has been a complete transformation of the business on the land, the land itself has remained unchanged.

Commissioner Peirce's observation is very accurate: the initial issuance of tokens for a project may involve an investment contract, but these commitments are not always enduring. The network will mature, the code will be implemented, control will decentralize, and the role of the issuer will diminish or disappear. At some point, purchasers will no longer rely on the core managerial efforts of the issuer, and most token transactions will no longer be based on a reasonable expectation that "a particular group still largely drives the effort." In short, a token does not remain a security simply because it was part of an investment contract transaction, just as a golf course does not become a security because it was once part of a citrus grove investment scheme.

When an investment contract can be deemed to have been fulfilled or to have terminated according to its terms, tokens may continue to be traded, but these trades do not become solely securities transactions just because of the token's origin story.

As many of you know, I am a strong supporter of financial sector super apps, applications that under a single regulatory license enable the custody and trading of multiple asset classes. I have asked the SEC staff to prepare recommendations for the SEC's consideration: permitting tokens associated with investment contracts to be traded on non-SEC-regulated platforms, including platforms registered with the Commodity Futures Trading Commission (CFTC) or subject to state regulatory frameworks. While fundraising activities should still be under SEC regulation, we should not stifle innovation and investor choice by requiring the underlying assets to be traded only in a specific regulatory environment.

It is important to note that this does not mean fraudulent behavior suddenly becomes acceptable or that the SEC's vigilance has diminished. Anti-fraud provisions still apply to false statements and omissions made in connection with the sale of an investment contract, even if the underlying asset is not a security. Of course, concerning these tokens as commodities under state trade law, the CFTC also has anti-fraud and anti-manipulation authority to address misconduct in trading these assets.

This implies that our rules and enforcement will align with the economic reality of "investment contracts possibly terminating, networks capable of independent operation."

Cryptocurrency Regulatory Action

In the coming months, as envisioned by legislation currently being considered by Congress, I also hope that the SEC will consider a range of exemptions tailored to create an issuance regime for cryptocurrency assets that are part of an investment contract or subject to investment contract constraints.

I have asked the staff to prepare recommendations for SEC consideration aimed at promoting funding, fostering innovation, and ensuring investor protection.

By streamlining this process, innovators in the blockchain space can focus their energy on development and user interaction, rather than navigating the maze of regulatory uncertainty. Furthermore, this approach will nurture a more inclusive and vibrant ecosystem, allowing smaller-scale, resource-constrained projects to freely experiment and thrive.

Of course, we will continue to work closely with the Commodity Futures Trading Commission (CFTC), banking regulators, and relevant congressional committees to ensure that non-security crypto assets have the appropriate regulatory framework. Our goal is not to expand the SEC's jurisdiction, but to foster vibrant fundraising activities while ensuring investor protection.

We will continue to listen to all stakeholders. The cryptocurrency special working group and related departments have held numerous roundtable discussions, reviewed extensive written submissions, but we need more feedback. We need input from investors, developers concerned about code delivery, and traditional financial institutions eager to participate in on-chain markets but unwilling to violate rules established for the paper age.

Finally, as I mentioned earlier, we will continue to support Congress in its efforts to incorporate a well-defined market structure framework into written law. While the SEC can provide reasonable views under current law, future iterations of the SEC may change course. That is why tailored legislation is so important, and why I am eager to support President Trump's goal of enacting cryptocurrency market structure legislation by the end of the year.

Integrity, Comprehensibility, 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. While the SEC protects investors from securities fraud, the federal government has many other regulatory agencies capable of policing and preventing illicit behavior. That said, if you raise funds by making commitments to build a network and then abscond with the funds, we will find you and take the most severe lawful action.

This framework is a commitment to integrity and transparency. For entrepreneurs who wish to start a business in the United States and are willing to abide by clear rules, we should not offer just a shrug, a threat, or a subpoena; for investors trying to distinguish between buying tokenized stock and buying game collectibles, we should not just provide a complex web of enforcement actions.

Most importantly, this framework reflects a humble recognition of the boundaries of the SEC's own authority. Congress crafted securities laws to address a specific problem—where individuals entrust money to others based on their integrity and competence. These laws are not intended to be a catch-all charter for regulating all new forms of value.

Contracts, Freedom, and Responsibility

Let me conclude with a historical reflection from Commissioner Peirce's speech in May of this year. She evoked the spirit of an American patriot who, at great personal risk, even facing death, stood up for the principle that free people should not be subject to arbitrary rule.

Fortunately, our work does not require such sacrifice, but the principle is the same. In a free society, the rules that govern economic life should be knowable, reasonable, and appropriately bounded. When we extend securities laws beyond their rightful scope, when we presume guilt in every innovation, we stray from this core principle. When we acknowledge the limits of our authority, when we recognize that investment contracts may conclude, and networks may operate independently based on their own value, we are embodying this principle.

The SEC's approach to cryptocurrency regulation, done reasonably, will not determine the market or the fate of any particular project; that will be determined by the market. However, it will help ensure that America remains a place where people can experiment, learn, fail, and succeed under firm and fair rules.

This is the essence of Project Crypto and the goal the SEC should strive for. As Chairman, I make this commitment to you today: We will not let fear of the future trap us in the past; we will not forget that behind every token-related debate are real people—entrepreneurs striving 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.

Thank you all, and I look forward to continuing the dialogue with you in the coming months.

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