When a non-security crypto asset becomes, and ceases to be, subject to an investment contract
The SEC centers its analysis on the issuer’s marketing and promotion when non-security crypto assets are offered, emphasizing that explicit representations or promises to undertake essential managerial efforts that drive expected profits will create an investment contract when coupled with an investment of money in a common enterprise. Detailed business plans with milestones, resource commitments and causal links between the issuer’s efforts and anticipated profits are more likely to give rise to reasonable expectations of profit under Howey than vague or non-actionable statements. The SEC highlights familiar offering structures like immediate-delivery coin sales and delayed-delivery agreements for future tokens, explaining that the sale occurs upon entry into the agreement and that the non-security asset becomes subject to an investment contract at that time, regardless of delivery timing. The SEC is explicit that subjecting a non-security asset to an investment contract does not convert the asset itself into a security.
Separation occurs when purchasers can no longer reasonably expect the issuer’s represented essential managerial efforts to remain connected to the asset; once the issuer has fulfilled those representations or promises, the associated investment contract ceases to exist and subsequent offers or sales of the non-security asset are not securities transactions unless a new investment contract is created. The Commission underscores that failure to register an offering of an investment contract, or to qualify for an exemption, remains a violation with investor rights and antifraud exposure even if the asset later separates from the contract.3 The Interpretation encourages precise, time-bound disclosures of promised efforts and milestones, and public notice when promises are fulfilled, to clarify when separation is achieved.
Protocol Mining and Protocol Staking: activities that do not involve securities transactions as described
The Commission explains core crypto network mechanics, noting that public, permissionless networks use consensus mechanisms to validate transactions and maintain state without designated intermediaries, and then analyzes protocol mining on proof-of-work networks and protocol staking on proof-of-stake networks. In the interpretive view, protocol mining and specified protocol staking activities, conducted in the manners and circumstances described, do not involve offers or sales of securities and therefore do not require Securities Act registration or an exemption.
For self or solo staking, a node operator stakes its own digital commodities and contributes resources to participate in validation, qualifying for protocol-determined rewards; these activities do not involve a reasonable expectation of profits from the essential managerial efforts of others. For custodial arrangements, the custodian acts as agent, does not decide whether, when, or how much to stake on behalf of depositors, and any selection of a node operator is treated as administrative or ministerial; the custodian does not fix or guarantee reward amounts, though it may deduct fees. For liquid staking, a liquid staking provider stakes on behalf of depositors and issues staking receipt tokens evidencing ownership of the deposited digital commodities and rewards; provider actions parallel custodial arrangements and are not treated as essential managerial efforts in this interpretation.
The Commission elaborates on operational details of liquid staking, including how rewards accrue programmatically and how staking receipt tokens can either represent a changing claim ratio as rewards and slashing losses occur or be issued and redeemed in amounts that track those outcomes while preserving a one-to-one token-to-commodity ratio. The Commission also describes ancillary convenience services—such as early unbonding facilitation, alternative reward payment cadences, and aggregation to meet protocol minimums—and views them as administrative or ministerial when implemented as described. Within this framework, the offer and sale of staking receipt tokens that are receipts for non-security crypto assets that are not subject to investment contracts do not involve securities; by contrast, receipts linked to digital securities or to non-security assets that remain subject to investment contracts are themselves securities. The interpretation ties this conclusion to the fact that such receipts do not themselves generate rewards or have the economic characteristics of securities and simply evidence ownership of deposited commodities.
Wrapping: redeemable wrapped tokens that are receipts for non-security assets
The Commission defines wrapping as depositing a crypto asset with a custodian or programmatic cross-chain bridge and receiving a redeemable wrapped token on a one-for-one basis that is backed and redeemable one-for-one for the deposited asset, with the provider holding the deposited asset solely for the benefit of wrapped token holders and prohibiting any use, pledge, or rehypothecation. Holders can redeem by returning the wrapped tokens for burning and release of the deposited crypto asset on a fixed one-for-one basis. When the wrapped token is a receipt for a non-security crypto asset that is not subject to an investment contract, its offer or sale does not involve a securities transaction; if the receipt represents a digital security or a non-security crypto asset that remains subject to an investment contract, the offer or sale is a securities transaction. The Commission reasons that such redeemable wrapped tokens, as described, lack the economic characteristics of securities and do not constitute derivative instruments enumerated in the securities definition; they merely evidence entitlement to the deposited asset.
Certain airdrops: when no securities transaction is involved
The Commission addresses the application of Howey to airdrops of non-security crypto assets that are not subject to an investment contract, explaining that such airdrops do not involve the offer or sale of securities, and it provides examples where retroactive or unannounced allocations based on prior usage or holdings do not trigger securities status in this interpretive view. The Commission clarifies that the interpretation does not address airdrops of digital securities, does not change what constitutes a “sale” of a security under the Securities Act or Exchange Act, and reiterates that the cited sale definitions by their terms do not apply to airdrops of non-security crypto assets not subject to investment contracts.
Practical implications for market participants
For tokenized securities and other digital securities, the message is continuity: all devices and instruments with the economic characteristics of securities are treated as securities irrespective of tokenization, and market participants should plan offerings, custody, transfer, and secondary activity accordingly. For non-security crypto assets, particularly those within the digital commodity, digital collectible, and digital tool categories as defined, the Interpretation provides greater certainty that the assets themselves are not securities, while emphasizing that an investment contract can arise—and later cease—based on issuer representations and promises tied to essential managerial efforts. Issuers should calibrate disclosures to specify milestones and post-fulfillment status to support separation, and they should recognize that failure to register or to meet antifraud obligations during the life of an investment contract remains actionable even if the asset later separates.
Protocol miners, stakers, custodial staking service providers, and liquid staking providers operating as described can take comfort that their core activities, as defined in the Interpretation, do not involve securities offers or sales; however, deviations from the described parameters—such as a custodian deciding whether, when, or how much to stake—fall outside scope. Providers issuing staking receipt tokens or redeemable wrapped tokens that are receipts for non-security crypto assets not subject to investment contracts can similarly proceed without Securities Act registration under this interpretation, while providers dealing in receipts linked to digital securities or non-security assets still subject to investment contracts must treat those as securities. Stablecoin issuers and intermediaries should align plans with the GENIUS Act’s issuer categories and effective-date triggers and with the Commission’s interim position on “Covered Stablecoins,” while recognizing that non-covered stablecoins could still be securities based on their features.
Although the Interpretation constitutes an interpretive rule which is not subject to the notice-and-comment requirements under the Administrative Procedure Act, the SEC signals ongoing openness to input, invites comments on all aspects of the Interpretation, and may “refine, revise, or expand” the Interpretation in response to such comments. Accordingly, market participants should proactively engage with the SEC through comments as well as closely monitor developments as the SEC may revise its interpretive position or use the Interpretation as a basis for future rulemaking.
Please contact any member of our Fintech and Digital Assets team with questions concerning the Interpretation or its potential impact on your operations.
Footnotes
1 Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, SEC Release Nos. 33-11412; 34-105020).
2 The Interpretation expressly supersedes the SEC staff's April 2019 “Framework for ‘Investment Contract’ Analysis of Digital Assets,” which has been the primary analytical tool market participants have used for nearly seven years.
3 It also is important to note that secondary market transactions in a non-security crypto asset that remain subject to an investment contract are themselves securities transactions requiring registration or an exemption.
