SEC Releases Landmark Interpretation on Application of U.S. Securities Laws to Crypto Assets, in Coordination With CFTC

On March 17, 2026, the U.S. SEC issued a commission-level interpretive release, “Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets” (the Interpretation.)¹ The Interpretation is the SEC’s most comprehensive statement to date on the application of the Securities Act of 1933 and the Securities Exchange Act of 1934 (together, the Securities Laws) to crypto assets and provides market participants with meaningful certainty.

The Interpretation is part of a concerted effort to establish a clear federal regulatory framework for crypto assets. The CFTC joined the Interpretation to provide guidance that the CFTC and its staff will administer the Commodity Exchange Act (CEA) consistent with the SEC’s interpretation, and both agencies position the Interpretation alongside the proposed market structure legislation currently under negotiation in Congress. The SEC states that it may also refine or expand the Interpretation based on feedback from the public.

Our Take

The Interpretation is the most authoritative crypto asset guidance the SEC has issued. Unlike prior staff statements — which it expressly supersedes on covered topics² — it is an official commission position, was adopted pursuant to the SEC's statutory rulemaking powers,³  and both the SEC and CFTC have committed to administer their respective statutes consistent with the Interpretation, including in enforcement actions. However, the Interpretation is not binding on federal courts, and private litigation risks remain.

• The Interpretation provides meaningful clarity by establishing a five-part taxonomy of crypto assets, but does not resolve every question. Howey remains binding legal precedent for determining whether a contract, transaction, or scheme is an “investment contract.” While the Interpretation provides significant guidance on the application of Howey that the SEC, SEC staff, and the courts have not previously addressed, the securities law analysis remains intensely fact-specific.

• The Interpretation is a beginning, not an end. The Interpretation is the first step implementing the SEC’s rulemaking agenda related to crypto assets, and more developments are expected in the near term. In a speech on the day the Interpretation was released, SEC Chairman Paul S. Atkins previewed possible exemptive rulemaking that builds on the Interpretation.⁴ It is also the first product of the SEC and CFTC’s recently signed memorandum of understanding and Joint Harmonization Initiative⁵ and a signal of enhanced cooperation between the agencies, particularly where there is a jurisdictional question over which regulatory regime applies to a particular crypto asset or transaction.

New Token Taxonomy and Defined Terms

The Interpretation establishes a five-part taxonomy of crypto assets, based on their characteristics, uses, and functionality: (i) digital commodities, (ii) digital collectibles, (iii) digital tools, (iv) stablecoins, and (v) digital securities.

Digital commodities, collectibles, and tools are not securities themselves but may be subject to an investment contract. Digital securities (i.e., tokenized securities) are securities. Stablecoin arrangements outside those described by the Interpretation may be securities, depending on facts. The treatment of a non-security crypto asset may depend on its rights, functions, and governing legal framework. The Interpretation states that certain non-security crypto assets could meet the definition of a “commodity” under the CEA, while other assets may have hybrid characteristics or may not fit neatly within the Interpretation’s five categories, leaving open a regulatory gray area pending further guidance. The Interpretation describes the following types of crypto assets.

• Digital commodities: Crypto assets deriving value from the programmatic operation of a functional crypto system and supply-and-demand dynamics rather than from an expectation of profits based on the essential managerial efforts of others. These assets may carry technical or governance rights, but the category is tied to a functional system that does not have a “central party” that oversees participation or distributes rewards to users, keeping decentralization and control questions squarely in view.

• Digital collectibles: Crypto assets designed to be collected and/or used, including assets tied to artwork, in-game items, memes, current events, or trends. Their value arises from artistic, entertainment, social, or cultural significance and market demand, not post-sale managerial efforts. Notably, creator royalties do not, by themselves, turn a digital collectible into a security, while fractionalization may raise securities issues. The Interpretation also contemplates that a meme coin could begin as a digital collectible and later become a digital commodity if it becomes functional within a crypto system.

• Digital tools: Crypto assets that perform a practical function, such as memberships, tickets, credentials, title instruments, or identity badges. Their value is derived from utility rather than financial rights, and they often are not transferable or “soul-bound.” Unlike digital commodities, digital tools may be issued either by a central party or autonomously through a crypto system.

• Digital securities: Financial instruments already encompassed by the definition of “security” but represented onchain or otherwise formatted as crypto assets. The Interpretation stresses that a security remains a security regardless of whether it is issued offchain or onchain. Tokenized securities may be issued by or on behalf of the underlying issuer or by unaffiliated third parties, and the rights associated with the crypto asset may differ materially from the rights associated with the underlying instrument.⁶

• Stablecoins: The Interpretation applies to stablecoins issued in compliance with the GENIUS Act (once effective)⁷ as well as “Covered Stablecoins” as defined in SEC staff’s April 4, 2025, Statement on Stablecoins.⁸ The Interpretation expressly reserves that other types of stablecoins and related arrangement may constitute securities, depending on the facts. For this reason, the treatment of stablecoins — including the treatment of stablecoin rewards — remains only partially resolved by the Interpretation.

In addition to the taxonomy, the SEC creates definitions for (i) crypto systems,⁹ (ii) onchain versus offchain,¹⁰ (iii) functional and decentralized,¹¹ (iv) whitepaper,¹² and (v) central party.¹³ These definitions bear directly on whether a crypto asset can qualify as a digital commodity; the difference between onchain and offchain underscores that format does not alter securities status; and “whitepaper” identifies one of the channels through which issuer statements can create reasonable profit expectations under Howey. Establishing and using these terms consistently is therefore critical to ensure that all market participants — including regulators — share a common understanding and apply them uniformly across the industry.

Investment Contract Versus Crypto Asset

The SEC’s analysis of how to apply Howey to crypto assets and related transactions is the most significant, and most novel, component of the Interpretation.

First, the Interpretation expressly distinguishes the regulatory status of crypto assets that may be subject to an investment contract from the securities transaction itself. No longer does the SEC consider a crypto asset offered in an investment contract to “embody” a security, as it has at times argued in the past.

Second, the Interpretation discusses how and when a crypto asset may “separate” from an investment contract. Investment contracts must be offered and sold in compliance with the Securities Laws; once a non-security crypto asset “separates” from the investment contract, transactions in that asset are no longer subject to the Securities Laws.¹⁴

According to the Interpretation, a crypto asset separates from the investment contract when purchasers would no longer reasonably expect the issuer’s essential managerial efforts to remain “connected” to the asset. The Interpretation identifies nonexclusive indicia of this “separation,” including the issuer’s fulfillment of promised essential managerial efforts and public abandonment or nonperformance.

The Interpretation focuses on an issuer’s representations and promises, both for identifying when an investment contract is created as well as when it is terminated and the subject of the investment contract is separated. The issuer’s marketing activities and promotional statements — and related facts — are thus critical to the investment contract analysis. For example, the Interpretation distinguishes a reasonable purchaser’s expectations of statements made by issuers and by third parties or whether representations are explicit and unambiguous as to the essential managerial efforts to be undertaken by the issuer rather than vague and “unactionable” statements.

Tying the separation of the asset from the investment contract to explicit representations made by the issuer provides a practical roadmap for token issuers. For example, the Interpretation states that separation of the non-security crypto asset from the issuer’s representations or promises to engage in essential managerial efforts may occur at any time after the offer of the associated investment contract, such as immediately upon delivery of the non-security crypto asset to purchasers or at a future date.

Notwithstanding the Interpretation’s clarification as to when a non-security crypto asset may separate from an associated investment contract and therefore no longer be subject to the Securities Laws, questions may remain as to whether that asset qualifies as a “digital commodity,” particularly in light of the Interpretation’s treatment of functionality and decentralization and the inclusion of newly defined terms such as “central party.” Decentralization does not appear to be an express prerequisite to digital commodity status; the Interpretation states that a digital commodity may be native to a crypto system that is decentralized. Functionality, however, is required for an asset to be a digital commodity. At the same time, the Interpretation makes clear that whether a project has achieved promised “decentralization” or “functionality” will turn largely on how the issuer itself described those concepts in its marketing and promotional activities rather than on a general market conception of those terms.¹⁵

Certain Transactions Not Involving the Offer and Sale of a Security

The Interpretation concludes that certain proof-of-work mining, proof-of-stake staking, redeemable wrapped-token arrangements, and airdrops do not involve securities transactions, endorsing and building on some of the SEC staff guidance issued throughout 2025.

• Protocol Mining: Mining digital commodities on public, permissionless proof-of-work networks, including both self-mining and participation in mining pools. The SEC treats mining rewards as compensation for validation services performed under the network’s protocol, not profits derived from the essential managerial efforts of others.

• Protocol Staking: Staking digital commodities on public, permissionless proof-of-stake networks, including self-staking, self-custodial staking directly with a third party, custodial staking, and liquid staking. The SEC likewise treats staking rewards as consideration for validation services and extends that analysis to certain staking receipt tokens and specified ancillary services while leaving restaking and arrangements involving broader discretion or guaranteed rewards outside the scope of the Interpretation.

• Wrapping: The creation of redeemable wrapped tokens through the deposit of a crypto asset with a custodian or cross-chain bridge in exchange for a token backed one-for-one by the deposited asset and redeemable on the same basis, without any added yield, profit opportunity, or other benefit. The SEC treats covered wrapping as an administrative or ministerial interoperability function and the wrapped token as a receipt for the underlying asset, not as a separate security, unless the underlying asset is itself a digital security or is subject to an investment contract.

• Airdrops: Distributions of non-security crypto assets where recipients do not provide the issuer with money, goods, services, or other consideration in exchange for the asset. The SEC concludes that covered airdrops do not satisfy Howey’s “investment of money” element but limits that conclusion to no-consideration airdrops of non-security crypto assets and excludes arrangements in which recipients must perform tasks, make purchases, or otherwise provide value in exchange.

Implications for Market Participants

• Blockchain Companies and Foundations: Regulatory guidance now exists on how to comply with the Securities Laws for various types of token categories and distributions. Nevertheless, the Interpretation reinforces that the securities law analysis will turn heavily on features and functionality of tokens, manner of distribution, and publicly disseminated materials, including whitepapers.

• Stablecoin Issuers and Payment Businesses: The Interpretation provides only partial clarity for stablecoin issuers and payment businesses. It concludes that the offer and sale of covered stablecoins do not involve securities transactions, but it expressly does not involve stablecoins outside that category. As a result, the treatment of stablecoins remains only partially resolved.

• Infrastructure Providers: The Interpretation concludes that certain protocol staking activities, staking receipt tokens, and wrapped token arrangements do not involve securities transactions. It also states that specified ancillary staking services — such as slashing coverage, early unbonding, alternate reward timing or amounts, and aggregating — do not alter that conclusion. Those conclusions are limited, however, to arrangements in which the service provider’s role remains administrative or ministerial; programs involving discretion over whether, when, or how much customer assets are staked, fixed or guaranteed rewards, or other out-of-scope services may fall outside the Interpretation’s scope.

• Trading Platforms, Broker-Dealers, Market Makers, Funds, and Other Secondary-Market Participants: For secondary-market participants, the Interpretation provides a framework for assessing when a non-security crypto asset may cease to be subject to an associated investment contract. At the same time, it does not replace Howey, does not retroactively cure registration or antifraud issues arising from earlier offerings, and does not eliminate securities-law risk for secondary-market transactions where reliance on issuer efforts persists.

Next Steps

We encourage all stakeholders to assess carefully how these developments affect their businesses, including which questions have been resolved, which uncertainties remain, and whether engagement with regulators — such as through comment letters to the SEC and CFTC — may be appropriate as these agencies consider whether to revise or codify the Interpretation. Sidley stands ready to assist across all aspects of this process.

Knowledge Management Lawyer Daniel Engoren and law clerk Simrat Kohli contributed to this Sidley Update.

¹ https://www.sec.gov/rules-regulations/2026/03/s7-2026-09#33-11412final; https://www.sec.gov/files/33-11412-fact-sheet.pdf.

² The Interpretation also expressly supersedes the SEC staff’s Framework for “Investment Contract” Analysis of Digital Assets (Apr. 3, 2019) (see https://www.sidley.com/-/media/update-pdfs/2019/04/sec-finhubs-digital-asset-framework-a-guide-for-issuers-and-secondary-trading-markets-update.pdf) and other SEC staff statements covering the topics addressed in the Interpretation.

³ See Section 19 of the Securities Act and Section 23 of the Exchange Act, which provide a safe harbor for good-faith acts or omissions made in conformity with SEC rulemaking. The Interpretation is also designated by the Office of Management and Budget as a “major rule” under the Congressional Review Act. However, there is a question whether that safe harbor extends to interpretive releases as opposed to notice-and-comment rulemaking and codified regulation.

⁴ Chairman Atkins stated that he expects the SEC in coming weeks to consider proposed rulemaking that could include a time-limited “startup exemption,” a larger “fundraising exemption,” and an “investment contract safe harbor” that would apply once an issuer has completed or permanently ceased the essential managerial efforts it represented or promised under the investment contract. See https://www.sec.gov/newsroom/speeches-statements/atkins-remarks-regulation-crypto assets-031726.

⁵ https://www.sec.gov/files/mou-sec-cftc-2026.pdf.

⁶ See https://www.sidley.com/en/insights/newsupdates/2026/01/sec-staff-unveils-a-playbook-for-tokenized-securities.

⁷ Payment stablecoins issued by permitted payment stablecoin issuers under the GENIUS Act are expressly excluded from the definitions of both “security” and “commodity” and are instead subject to the Act’s dedicated payment-stablecoin regulatory regime.

⁸ Covered stablecoins are crypto assets designed and marketed for use as a means of making payments, transmitting money, or storing value; designed to maintain a stable value relative to the U.S. dollar; backed by U.S. dollars and/or other low-risk, readily liquid assets; and minted and redeemed by the issuer on a one-for-one basis with U.S. dollars, in each case as described in the SEC staff’s April 4, 2025, Statement on Stablecoins and incorporated by reference in the Interpretation. https://www.sec.gov/newsroom/speeches-statements/statement-stablecoins-040425.

⁹ “Crypto systems” are defined as crypto networks and crypto applications. Interpretation, Page 4.

¹⁰ “Onchain” refers to transactions or data processed and recorded directly on a crypto network, and “offchain” refers to transactions or data processed and recorded outside a crypto network. Interpretation, Page 4.

¹¹ A crypto system is “functional” if the system’s native crypto asset can be used on the system in accordance with the programmatic utility of the system. A crypto system is “decentralized” if the crypto system functions and operates autonomously with no person, entity, or group of persons or entities having operational, economic, or voting control of the crypto system. Interpretation, Page 14.

¹² A “whitepaper” refers to a document describing the technical aspects of a crypto asset project along with other relevant details. Interpretation, Page 26.

¹³ A “central party” is a person, entity, or group of persons or entities having operational, economic, or voting control of a crypto system. Interpretation, Page 16.

¹⁴ Importantly, the Interpretation acknowledges that the antifraud provisions of the Securities Laws may apply to the investment contract, even after the crypto asset and investment contract have separated.

¹⁵ See footnote 96.