U.S. SEC and CFTC Jointly "Unbind," Classifying Crypto Assets as "Digital Commodities" Rather Than "Securities"

Original｜Odaily (@OdailyChina)

Author｜Wenser (@wenser 2010)

On March 17 local time, the U.S. SEC officially released its 30th press release of the year. In this explanatory document of less than 1,000 words, SEC Chairman Paul Atkins, together with CFTC Chairman Michael Selinger, for the first time loosened the regulatory shackles that had been tightening around the entire crypto industry: most crypto assets are not securities and are classified as "digital commodities, digital collectibles, digital tools, and stablecoins."

On March 11 this year, the two agencies had jointly signed a Memorandum of Understanding (MOU), indicating a series of measures including "clarifying product definitions through joint interpretation and rulemaking, and establishing a modernized clearing, margin, and collateral framework." Now, this latest explanatory document appears to be the best proof of the two agencies' joint effort to deregulate the cryptocurrency market.

It is foreseeable that the impact of this document clarifying crypto asset classification will extend far beyond this. Subsequent intensive crypto IPOs, airdrops, DeFi mining, staking, and wrapped assets will all usher in new development opportunities. As for what lies behind this seemingly convenient door—whether it's a flood of institutional liquidity, countless retail investors, or a regulatory scythe hidden within the machine—perhaps only time will tell.

Detailed Analysis of the 5 Major Classifications in the SEC's Explanatory Document: Most Crypto Assets Are Not Securities

According to the "Fact Sheet" document released by the U.S. SEC, it provides clear regulations for the classification of 5 types of crypto assets:

• Digital Commodity — Non-Security — Its value is intrinsically linked to the programmatic operation and supply-demand dynamics of a "functional" crypto system, rather than arising from the expectation of profits from the essential managerial efforts of others.
• Digital Collectible — Non-Security — Designed specifically for collection or use, it may represent or convey rights to digital expressions or references of artwork, music, videos, trading cards, game items, or to internet memes, characters, current events, trends, etc.
• Digital Tool — Non-Security — A crypto asset with practical functionality, such as membership, tickets, vouchers, property deeds, or identity credentials.
• Stablecoin — Stablecoins meeting the definition under the GENIUS Act are non-securities, and stablecoin issuers are explicitly prohibited from paying interest or yields to holders in any form (cash, tokens, or other consideration).
• Digital Security (or "Tokenized Security") — Security — A financial instrument listed in the definition of "security" that is presented or represented in the form of a crypto asset, with ownership records maintained wholly or partially on one or more crypto networks.

In the subsequent, more detailed 68-page interpretive document, the U.S. SEC also provided its own definitions for airdrops, DeFi mining, staking, and wrapped assets:

• DeFi Mining (Protocol Mining): Does not constitute a securities offering. (Odaily Note: There is no structure dependent on profits from the essential managerial efforts of others.)
• Staking: Does not constitute a securities offering. (Odaily Note: If the underlying asset is a digital security, or a non-security asset that has been incorporated into an investment contract, the staking derivative is classified as a security.)
• Wrapped Asset: Not a security. (Odaily Note: The custodian of the wrapped asset must not misappropriate the underlying asset; it cannot be transferred, lent, staked, restaked, or used for any other purpose.)
• Airdropped Asset: Not a security. (Odaily Note: If the issuer proactively announces an airdrop plan and requires users to complete specific tasks to receive the airdrop, establishing a clear quid pro quo relationship through active labor, it may constitute investment contract risk.)

In simple terms, what does not fall under securities/stocks includes: Digital Commodities, like gold or oil, tangible things that are actually usable, with prices determined by market supply and demand. Bitcoin and Ethereum belong to this category; Digital Collectibles, like stamp collecting or buying paintings, are for collection or appreciation. Popular NFT images, game items (including Meme coins) online fall into this category; Digital Tools, like membership cards, tickets, or certificates, are obtained for use, not for speculation; Stablecoins. Like digital "shopping vouchers," specifically used for payment, with stable value and no volatility. But there is a hard rule: issuers cannot pay interest to holders; once interest is paid, the nature changes and it may be considered a stock.

Digital Securities, these are essentially stocks, just digitally repackaged, so they remain within the scope of stocks.

Mining, using computers to help the network keep accounts and earn coins, is not issuing stocks; Staking, locking up coins to help maintain network security and earn some rewards, is not issuing stocks. But if the coins you lock are inherently stock-like, that's a different story. Wrapping, converting one type of coin into a form usable on another network, similar to changing money, is not issuing stocks. Airdrops, platforms giving away coins for free, are also not issuing stocks. But if the platform requires you to complete tasks first before giving you coins, that resembles an "employment relationship," and the nature might be different.

It is worth noting that the document acknowledges for the first time that an "investment contract" can be terminated. This means that even if a token was initially issued through fundraising (ICO), as long as it later achieves decentralization or acquires utility properties, it can cease to be considered a security.

Although these currently remain at the level of "interpretive documents" and have not yet reached specific statutory law, they have preliminarily clarified the previously chaotic crypto asset classification system, providing some evidential support for future regulation and enforcement. Subsequently, the potential impact of this document may bring market benefits in the following aspects.

Crypto Asset Non-Security Classification Released, 3 Potential Benefits May Drive Market Recovery

Currently, this interpretive document jointly issued by the U.S. SEC and CFTC resembles more of a "New Crypto Development Manifesto," which will directly propel the explosive development of prediction markets, crypto IPOs, and DeFi protocols.

New Interpretation Clears Obstacles for Polymarket Airdrop, Crypto IPOs and Token Launches Set to Proceed

Following the release of the latest SEC crypto asset regulatory interpretation, crypto KOL @harrysew posted that this framework may "give the green light" to the POLY token launch and airdrop, significantly reducing regulatory uncertainty. On one hand, Polymarket can leverage its real-time data prediction functionality, making the POLY token a utility token; on the other hand, mining, staking, and wrapping assets can also proceed smoothly, further expanding the application scenarios of the POLY token.

Thus, Polymarket is expected to evolve from an "illegal gambling den" previously targeted by local regulators into a "global truth machine" that predicts the future and verifies the course of events.

New Interpretation Facilitates Crypto Exchange IPOs in the US, Exchange Tokens No Longer a Liability

For exchanges like OKX and Kraken aspiring to conduct crypto IPOs in the U.S. stock market, this interpretive document is a godsend.

Previously, exchanges were often constrained by limitations on their balance sheets, unable to clearly define and conduct compliant audits for assets including exchange tokens and platform-held assets, fearing regulators would slap them with the label that "cryptocurrencies are stocks."

Now, with the help of this interpretive document, the audit obstacles prior to an IPO have been cleared at once, and former exchange tokens are no longer a barrier standing in the way of an IPO.

New Interpretation Benefits DeFi Protocol Development, Massive Liquidity May Pour In

For many DeFi protocols, this interpretive document is also a "get-out-of-jail-free card."

Previously, many DeFi protocols, including Uniswap, have received "regulatory subpoenas" from the SEC. Now, staking, wrapped assets, and spot holdings are explicitly not securities. In light of this, numerous institutional funds can enter and use DeFi protocols in a compliant, large-capacity manner.

Of course, regarding liquidity mining, governance tokens promising returns, and yield aggregation protocols, asset management giants like BlackRock and Fidelity still cannot seamlessly enter.

Conclusion: The End of Crypto's Wild West Era, Market Accelerates into the "Great Incorporation Era"

Of course, just like the two sides of a coin, as the legal boundaries defined by the SEC and CFTC become clearer, the previous "ambiguity红利" and "gray areas" within the cryptocurrency industry will simultaneously face a reckoning. To some extent, the crypto industry, like the banking and credit industries before it, is gradually being incorporated into the regulatory system and compliance framework. New crypto projects will need to invest more human and material resources in regulatory compliance, airdrop distribution, staking design, etc., which to some extent may also impact crypto innovation.

Nevertheless, for the current liquidity-starved crypto market, every detailed interpretation from regulators is an invitation ticket to the mainstream financial world. Although the ideal of decentralization is fading further from us, more importantly, as the crypto industry's connection with the mainstream population becomes tighter, its vitality and survival conditions can be guaranteed to a certain extent.

Between disappearing under silent, high pressure and living under constraints, I believe most would choose the latter.