Latest Speech by the Chairman of the SEC: Farewell to a Decade of Chaos, Crypto Regulation Enters a Clear Era

Written by: Paul S. Atkins, Chairman of the U.S. Securities and Exchange Commission  
Compiled by: Luffy, Foresight News

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

Recently, when discussing America's leadership 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, aimed at updating securities rules and regulations to enable on-chain capabilities in U.S. financial markets). Today, I would like to outline the next steps in this process. The core of this step is to uphold the principles of basic fairness and common sense in applying federal securities laws to crypto assets and related transactions.

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

What I am about to discuss 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 providing coherent and transparent securities law regulation of crypto assets based on economic substance rather than slogans or panic. I want to reiterate that I share her vision. I value her leadership, hard work, and unwavering commitment to advancing these issues over the years. I have worked alongside her for a long time and am very pleased that she has agreed to take on this task.

My remarks 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 I begin, I also want to reiterate: while SEC staff are diligently drafting rule amendments, I fully support Congress's efforts to incorporate a comprehensive cryptocurrency market structure framework into statutory law. My vision aligns with the bills currently under consideration by Congress, aimed at complementing rather than replacing Congress's critical work. Commissioner Peirce and I have prioritized supporting congressional action and will continue to do so.

It has been a pleasure collaborating with Acting Chair Pham, and I wish the CFTC chair nominee Mike Selig, nominated by President Trump, a smooth and swift confirmation. My experience working with Mike over the past few months has convinced me that we are both committed to assisting Congress in rapidly advancing a bipartisan market structure bill for the President's signature. There is nothing more effective in preventing regulatory agency overreach than sound statutory language enacted by Congress.

To reassure my compliance team, I will make a standard disclaimer: my remarks represent my personal views as Chair 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 surrounding this question arises because "crypto assets" is not a term defined in federal securities law; it is a technical description that merely indicates how records are kept and value is transferred, without mentioning the legal rights attached to specific instruments or the economic substance of specific transactions, which are key to determining whether an asset is a security.

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

Investment contracts can be performed or terminated. Just because the underlying asset of an investment contract continues to trade on the blockchain does not mean that the investment contract is forever valid.

However, in recent years, too many have argued that if a token was once the subject of an investment contract, it is forever a security. This flawed view 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 view with statutory language, Supreme Court precedent, or common sense.

Meanwhile, developers, exchanges, custodians, and investors have been groping in the fog, lacking guidance from the SEC and facing obstacles instead. The tokens they see serve as payment tools, governance tools, collectibles, or access keys, while some are hybrid designs that are difficult to categorize into any existing category. Yet, for a long time, the regulatory stance has treated all these tokens as if they were securities.

This view is neither sustainable nor practical. It imposes enormous costs with little benefit; it is unfair to market participants and investors, inconsistent with the law, and has triggered a wave of entrepreneurs moving offshore. The reality is that if the U.S. insists on forcing every on-chain innovation to navigate the minefield of securities law, these innovations will migrate to jurisdictions that are more willing to differentiate between types of assets and more willing to establish 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 outlining my views on the application of securities law to cryptocurrencies and transactions, I want to clarify two fundamental principles that guide my thinking.

First, whether a stock is represented by a paper certificate, recorded in a DTCC account, or presented as a token on a public blockchain, it is still fundamentally a stock; a bond does not cease to be a bond simply because its payment flow is tracked through a smart contract. Regardless of the form it takes, a security is always a security. This is easy to understand.

Second, economic substance prevails over labels. If an asset essentially represents a claim on the profits of a business and is sold with a promise that relies on the core management efforts of others, then calling it a "token" or "non-fungible token (NFT)" does not exempt it from current securities laws. Conversely, just because a token was once part of a financing transaction does not mean it magically transforms into stock of an operating company.

These principles are not novel. The Supreme Court has repeatedly emphasized that when determining whether securities laws apply, the substance of the transaction should be the focus, not the form. The new development is the scale and speed at which asset types are evolving in these new markets. This pace requires us to respond flexibly to the urgent need for guidance from market participants.

A Coherent Token Classification System

Against this backdrop, 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 developed based on months of roundtable discussions, over a hundred meetings with market participants, and hundreds of public written comments.

• First, regarding the bills currently under consideration by Congress, I believe that "digital commodities" or "network tokens" are not securities. The value of these crypto assets is fundamentally related to the programmatic operation of a "well-functioning" and "decentralized" crypto system, rather than deriving from the expected profits of others' key management efforts.
• Second, I believe that "digital collectibles" are not securities. These crypto assets are intended for collection and use, and may represent or confer rights to digital expressions or references of art, music, videos, trading cards, in-game items, or internet memes, characters, events, and trends. Buyers of digital collectibles do not expect to profit from the daily management efforts of others.
• Third, I believe that "digital tools" are not securities. These crypto assets have practical functions, such as memberships, tickets, vouchers, proof of ownership, or identity badges. Buyers of digital tools do not expect to profit from the daily management efforts 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.

The Howey Test, Commitments, and Termination

While most crypto assets themselves are not securities, they may become part of an investment contract or be subject to investment contracts. Such crypto assets often come with specific statements or commitments that the issuer must fulfill management duties to meet the requirements of the Howey test.

The essence of the Howey test is: investing money in a common enterprise with a reasonable expectation of profits derived from the efforts of others' core management. The buyer's expectation of profit depends on whether the issuer has made statements or commitments to undertake core management efforts.

In my view, these statements or commitments must clearly and unambiguously indicate the core management efforts the issuer will undertake.

The next question is: how do non-security crypto assets separate from investment contracts? The answer is simple yet profound: the issuer either fulfilled the statements or commitments, or failed to do so, or the contract terminated for other reasons.

To help everyone understand better, I want 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, planting orange and grapefruit groves next to his mansion. His company sold parcels of the orchard to individual investors and was responsible for growing, harvesting, and selling the fruit for them.

The Supreme Court reviewed Howey's arrangement and established the test standard for defining investment contracts, which has influenced generations. But today, Howey's land has undergone a dramatic transformation. The mansion he built in Lake County, Florida, in 1925 still stands a century later, hosting weddings and other events, while the citrus groves that once surrounded the mansion have mostly disappeared, replaced by resorts, championship golf courses, and residential communities, making it an ideal retirement community. It is hard to imagine that anyone standing on these fairways and cul-de-sacs today would consider them securities. Yet, for 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 their issuance 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 terminated, it was no longer bound by the investment contract. Of course, while the business on the land underwent a complete transformation, the land itself remained unchanged.

Commissioner Peirce's observation is very accurate: a project's token issuance may initially involve an investment contract, but these commitments are not forever valid. Networks mature, code is implemented, control is decentralized, and the role of the issuer diminishes or even disappears. At some point, buyers no longer rely on the issuer's core management efforts, and most token transactions are no longer based on the reasonable expectation that "a team is still in control." In short, a token does not remain a security forever simply because it was once part of an investment contract transaction, just as a golf course does not become a security simply because it was once part of a citrus grove investment plan.

When an investment contract can be deemed fulfilled or terminated according to its terms, tokens may continue to trade, but these transactions will not become securities transactions merely because of the token's origin story.

As many of you know, I strongly support the concept of super apps in the financial sector, allowing applications to custody and trade multiple asset classes under a single regulatory license. I have asked SEC staff to prepare relevant recommendations for SEC consideration: allowing tokens related to investment contracts to trade on non-SEC regulated platforms, including intermediaries registered with the 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 trade in a specific regulatory environment.

Importantly, this does not mean that fraudulent behavior suddenly becomes acceptable or that the SEC's focus diminishes. 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 these tokens as commodities in interstate commerce, the 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 align with the economic substance of "investment contracts may terminate, and networks 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 series of exemptions to establish a tailored issuance regime for crypto assets that are part of or subject to investment contracts.

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

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

Of course, we will continue to work closely with the CFTC, banking regulators, and corresponding congressional committees to ensure that non-security crypto assets have an appropriate regulatory framework. Our goal is not to expand the SEC's jurisdiction but to allow financing activities to flourish while ensuring investor protection.

We will continue to listen to all voices. The cryptocurrency task force and relevant departments have held multiple roundtable discussions and reviewed a large volume of written comments, 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 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 views under current law, future SECs may still change direction. This is why tailored legislation 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 the Rule of Law

Now, I want to clarify what this framework does not include. It is not a commitment to relax enforcement by the SEC; fraud is fraud. While the SEC protects investors from securities fraud, there are many other regulatory agencies in the federal government capable of regulating and preventing illegal conduct. That said, if you build a network through commitments to raise funds and then abscond with the money, we will find you and take the most severe action under the law.

This framework is a commitment to integrity and transparency. For entrepreneurs wishing to start businesses in the U.S. and willing to adhere to clear rules, we should not merely offer shrugs, threats, or subpoenas; for investors trying to distinguish between purchasing tokenized stock and buying game collectibles, we should not only 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 enacted securities laws to address specific problems—namely, situations where people entrust their money to others based on their integrity and ability. These laws were not intended to serve as a universal 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 risked immense personal peril, even facing death, to defend the principle that free people should not be subject to arbitrary edicts.

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

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

That is the meaning of Project Crypto, and that is the goal the SEC should pursue. As Chair, I commit to you today: we will not allow fear of the future to trap us in the past; we will not forget that behind every debate about tokens are real people—the entrepreneurs striving to build solutions, the workers investing in the future, and the 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.