Key Takeaways
- The SEC issued a formal interpretation of the definition of “security” as applied to certain types of crypto assets and activities involving crypto assets. The CFTC joined the interpretation to provide complementary guidance under the Commodity Exchange Act. This interpretation supersedes the 2019 “Framework for ‘Investment Contract’ Analysis of Digital Assets” previously issued by the staff of the SEC’s Strategic Hub for Innovation and Financial Technology (staff of the SEC, the “Staff”).
- The Interpretive Release classifies crypto assets into five categories: (i) Digital Commodities (not securities); (ii) Digital Collectibles (not securities); (iii) Digital Tools (not securities); (iv) Stablecoins (GENIUS Act payment stablecoins and certain “covered stablecoins” not securities); and (v) Digital Securities / tokenized securities (securities), while noting that even a non-security crypto asset may be offered as part of an investment contract and thus be subject to the federal securities laws. Conversely, the Interpretive Release also provides guidance on when the investment contract analysis would be considered to be separated from the non-security crypto asset.
- The Interpretive Release provides guidance on the circumstances under which protocol mining, protocol staking and the wrapping of a non-security crypto asset do not involve the offer and sale of a security and certain airdrops do not involve an “investment of money” under the Howey test.
- The SEC is likely to follow up on the Interpretive Release by issuing a “safe harbor” for issuers of crypto assets that are offered as part of an investment contract.
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Contributors
The authors would like to thank Andrew Olivei for his contributions to this OnPoint.
