The SEC’s Crypto Road Trip Gathers Momentum

Progress on defining crypto assets’ security status

If the Crypto Task Force is to succeed in its mission to provide clarity on the application of the U.S. federal securities laws to crypto, it must resolve the question of which types of crypto assets (if any) are “securities,” as defined in Securities Act Section 2(a)(1) or Exchange Act Section 3(a)(10). As defined by the staff of the Division, a crypto asset is “an asset that is issued and/or transferred using a blockchain or similar distributed ledger technology network, including, but not limited to, so-called ‘tokens,’ ‘virtual currencies,’ ‘digital assets,’ and ‘coins,’ and that relies on cryptographic protocols.” Crypto assets that are deemed securities are subject to the U.S. federal securities laws and the SEC’s jurisdiction, whereas those that are not may be subject to regulation by other federal or state agencies under other U.S. federal and/or state laws. 

Since the creation of the task force, the staff has issued statements providing its views on whether three types of crypto assets, meme coins, Covered Crypto Assets mined on proof-of-work networks, and Covered Stablecoins (each as defined below) are securities. The statements are explicitly limited to assets that have the same characteristics as those described by the staff. Under Securities Act Section 2(a)(1) and Exchange Act Section 3(a)(10), a “security” includes a broad range of financial instruments such as notes, stocks, treasury stocks, security futures, security-based swaps, bonds, debentures and evidence of indebtedness, among others. The statutory definition of a security also provides that “investment contracts” are securities. In each case, the staff first considers whether the particular crypto asset constitutes one of the common financial instruments enumerated in the definition of a security. The staff then analyzes each asset to determine whether it is an investment contract under the multi-part test outlined by the U.S. Supreme Court in SEC v. W.J. Howey Co. The Howey test examines the economic reality of a transaction to determine whether there is an investment in a common enterprise premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. If such an investment exists, the asset constitutes an investment contract and thereby a security. The staff concludes that each of the three types of crypto assets is not a security. 

Like other staff statements, these statements on crypto do not have legal force and do not alter or amend existing law or regulation. However, we expect that formal rulemaking steps may commence in the near future now that the U.S. Senate has confirmed Paul Atkins as SEC Chair. 

Meme coins

On February 27, the Division provided its views on the security status of “meme coins,” which it defines as a type of crypto asset inspired by internet memes, characters, current events, or trends for which a promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading. The staff states that meme coins share a number of common characteristics, including that they are typically purchased for entertainment, social interaction, and cultural purposes, their value is driven primarily by market demand and speculation that makes them prone to significant market volatility, they typically have limited or no use or functionality and they are often accompanied by statements regarding their risk and lack of utility. 

The staff’s view is that transactions in the types of meme coins it describes are not offers and sales of securities under the U.S. federal securities laws. The staff first considers whether meme coins constitute any of the specifically enumerated types of securities and concludes they do not, among other things, because they do not generate a yield or convey rights to future income, profits, or assets of a business. The staff then analyzes meme coins under Howey and concludes that they are not investment contracts because meme coin purchasers are not investing in an enterprise and any expectation of profits is derived from speculative trading and market sentiment, not from the efforts of others. 

Certain proof-of-work mining activities

On March 20, the Division published its views on the security status of certain crypto assets mined on proof-of-work crypto networks (“Protocol Mining”). The staff statement analyzes the mining of crypto assets (“Covered Crypto Assets”) that are intrinsically linked to the programmatic functioning of a public, permissionless crypto network, and are used to participate in and/or earned for participating in such crypto network’s consensus mechanism or otherwise used to maintain and/or earned for maintaining the technological operation and security of such a network. Proof-of-work is a consensus mechanism that rewards network participants, called “miners,” with newly created Covered Crypto Assets, for validating transactions and adding them in blocks to the distributed ledger. Miners do not have to own the network’s Covered Crypto Asset to validate transactions. 

The staff addressed Protocol Mining activities and transactions involving (i) solo mining Covered Crypto Assets on a proof-of-work crypto network; and (ii) the roles of mining pools and pool operators involved in the Protocol Mining process, including in connection with the earning and distribution of rewards received for Protocol Mining. Mining pools involve miners combining their computational resources with other miners to increase their chances of successfully validating transactions and mining new blocks on a crypto network. 

According to the staff, Covered Crypto Assets, like meme coins, do not constitute any of the common financial instruments enumerated in the definition of a security. In considering whether transactions involving Covered Crypto Assets in the context of Protocol Mining involve investment contracts under Howey, the staff concludes that assets mined in Solo Mining are not an investment contract because the rewards that solo miners earn are payments in exchange for the computational services they provide to secure the network rather than profits from the efforts of others. Similarly, engaging in a mining pool does not involve an investment contract, and is therefore not a security, because any expectation of profits is not derived from the efforts of a third party, such as a pool operator, but rather from the administrative or ministerial activity of securing the network, validating transactions and adding new blocks, and receiving rewards. 

Stablecoins

On April 4, the Division issued a statement outlining its views on “Covered Stablecoins.” As defined by the staff, Covered Stablecoins refer to stablecoins that maintain a one-to-one value with the U.S. dollar, are redeemable on a one-to-one basis, and are backed by reserves held in low-risk, highly liquid assets whose value meets or exceeds the value of stablecoins in circulation. The staff acknowledges that the risks associated with stablecoins vary significantly depending on multiple factors, including their stability mechanisms and the maintenance of a reserve (if applicable). 

Unlike meme coins and “Covered Crypto Assets,” the staff states that “Covered Stablecoins” have characteristics in common with a “note” or “other debt instruments,” two of the common financial instruments enumerated in the definition of security. Because Covered Stablecoins share characteristics with a note or other debt instrument, the staff analyzes them under the test set out by the U.S. Supreme Court in Reves v. Ernst & Young. In Reves, the Court found that while there is a presumption that a “note” is a security because it is listed in the Securities Act and Exchange Act definitions, the presumption may be rebutted by showing that the subject note resembles those issued in commercial transactions and is therefore excepted from being a security. Applying the four factors of the Reves so-called “family resemblance” test, the staff concludes that Covered Stablecoins are not securities under Reves because sellers use the proceeds to fund a reserve and buyers are not motivated by an expected return on their funds, Covered Stablecoins are distributed in a manner that does not encourage trading for speculation or investment, a reasonable buyer would likely expect that Covered Stablecoins are not investments, and the availability of a reserve adequately funded to fully satisfy redemptions on demand is a risk-reducing feature of Covered Stablecoins. 

The staff then considers whether a Covered Stablecoin arrangement involves an investment contract under Howey, which considers whether there is an investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others. The staff concludes that Covered Stablecoins generally do not meet these criteria because purchasers do not expect profits from holding these assets, acquiring them instead for transactional or storage purposes, and because the value of the assets is maintained through stability mechanisms rather than entrepreneurial efforts. Based on these facts, the staff states that Covered Stablecoins do not appear to involve an investment contract and are therefore not securities. 

In response to the Covered Stablecoin statement, Commissioner Caroline A. Crenshaw released a statement raising significant concerns about the analysis and its implications. Crenshaw expressed concern that the staff’s position might be interpreted as signaling a broader regulatory safe harbor for stablecoins, potentially leading to under-regulation of assets that present systemic and investor protection risks. She urged a more comprehensive, Commission-level approach to evaluating stablecoin products within the broader digital asset taxonomy. 

Coordination with broader executive and interagency efforts

The SEC’s work on digital assets runs in parallel with broader federal efforts to create a unified regulatory framework for digital asset markets. In parallel to the SEC’s initiatives, the White House’s Executive Order 14078 established an interagency task force consisting of representatives of the SEC, the Commodity Futures Trading Commission and the Department of Treasury, to deliver a coordinated digital asset regulatory framework. This framework, due in late July 2025, is expected to propose clearer jurisdictional boundaries and address gaps in the current classification of digital assets, including stablecoins. As these broader efforts evolve, market participants should prepare for a more formalized and coordinated approach to digital asset regulation in the months ahead. 

Progress on setting disclosure expectations for issuers in the crypto asset space

The crypto industry has long expressed frustration with the lack of clear guidance on how existing securities disclosure rules apply to the industry and digital assets. Many issuers have struggled to understand how to comply with traditional requirements in a way that meaningfully reflects the unique characteristics of crypto products and businesses. On April 10, the Division issued new guidance by way of a statement outlining its views on the application of certain disclosure requirements to the registered or qualified offering of securities by crypto companies, including those seeking to register or qualify the sale of crypto assets with the SEC. In its statement, the Division reaffirmed its position that digital assets, when offered or sold as part of investment contracts, are subject to the same full and fair disclosure regime that applies to traditional securities. The statement leans on longstanding principles of materiality and transparency but emphasizes that disclosure should be carefully tailored to reflect the unique features and risks associated with digital asset offerings. 

In a separate statement, SEC Commissioner Hester Peirce, head of the Crypto Task Force, indicated her view that the guidance may be helpful for companies that, for example, are developing a blockchain or integrating non-fungible tokens into video games and issuing debt or equity, registering the offering of an investment contract in connection with an initial coin offering, or issuing a crypto asset that is a security itself. 

The Division’s statement marks a notable step toward establishing baseline disclosure standards for crypto companies within the framework of existing rules. The staff does not intend for its guidance to introduce a new disclosure regime, but rather aims to reinforce and clarify the applicability of existing rules to digital assets pending the outcome of the Crypto Task Force’s more comprehensive efforts to address registration and disclosure requirements for crypto assets. In the interim, to fill gaps, the guidance indicates that the Division welcomes questions about how the SEC’s disclosure rules apply as well as requests for interpretive or no-action letters relating to such matters, and also notes that issuers may consult with the Office of the Chief Accountant within the Division on accounting and financial statement questions. 

The Division’s guidance identifies several disclosure areas that are particularly relevant in the context of securities in the digital asset space, including the following, among others: 

Description of business: In the guidance, the staff indicates that where SEC rules require issuers to provide a narrative description of the material aspects of their business, disclosure should focus on information material to an understanding of the business as a whole and be presented clearly and without overreliance on technical jargon. The staff outlines certain favored disclosure practices that it has observed in this regard, including among others:

• Where business plans are being discussed, the disclosure might focus on the issuer’s specific business activity, such as operating or developing a network or application, the current stage of development of the business, plans for operations following the launch of the activity being developed, milestones that need to be reached to implement the business, and plans for revenue generation or other value or profit increases.
• In the case of an issuer developing or acquiring a network or application in particular, there may be tailored narrative disclosure of the purpose of the network or application and its operation, such as the current state and timeline of development. The narrative might include disclosure of how the development team intends to achieve maturity or deploy the application, as well as milestones, estimated costs, and source of funds. Such disclosure may also address the objectives and functions of the project under development, including an explanation of the underpinning technology and a description of associated intellectual property rights. 

Risk factors: The Division observes in its guidance that risk factors in the crypto asset markets will vary depending on the nature of the security being offered and the issuer’s business, but may cross a range of risk factors common across many issuances and issuers, including risks related to the security’s features, volatility, stockholder rights, valuation and liquidity, cybersecurity, and business, operational, network, and legal and regulatory risks. 

Description of securities: The Division notes that SEC rules require a materially complete description of an issuer’s securities, and that while the rules designate requirements for certain specified types of securities, they also include a general category for “other securities” that implicitly may apply in the context of the offering of a crypto asset that constitutes a security. The staff outlines numerous aspects of rights, obligations, and preferences that might be disclosed, and details example disclosures of technical specifications and disclosures related to supply of the security or subject crypto asset. Disclosures of technical specifications may include, among other information, details of the network or application associated with the security or subject crypto asset, technical requirements for holding, accessing and transferring the security or subject crypto asset, and where the ownership record exists and who maintains it. With respect to supply arrangement, disclosures might include, among other matters, rules governing the total supply of the security or subject crypto asset and whether anyone is responsible for implementing rules governing that supply. 

Management and key personnel disclosures: In connection with registration and certain other offerings, issuers must disclose the identity and experience of executive officers, directors, and significant employees who contribute materially to the issuer’s business. The staff notes in the guidance that this disclosure requirement extends to individuals without formal titles who perform policy-making functions, as well as third parties, such as sponsors of trusts, who carry out equivalent roles. 

The Division’s statement on offering and registration disclosures likely has immediate implications for crypto companies contemplating securities offerings or registration. For example, the guidance may push digital asset issuers to prepare for disclosure at the protocol level, and for disclosure that requires legal and compliance teams to work with engineers, product designers, and others to accurately map out not only the functionality of the network but also the flow of economic value, potential conflicts of interest, and governance mechanics. 

Strategic considerations and market implications

The evolving positions staked out by the SEC staff in its guidance on whether certain crypto assets constitute securities and how market participants should think about disclosures are expressly limited. The road ahead is far from settled. Key issues such as governance rights, staking mechanics, treasury transparency, and protocol-level risk disclosures remain unresolved under current law. Further in the absence of formal rulemaking or tailored exemptions, digital asset issuers must rely on informal guidance and effectively reinterpret legacy disclosure requirements for decentralized systems—an inherently complex task. Without a clear regulatory path, some projects may struggle to attract institutional capital and others may delay product rollouts or limit access to U.S. users out of an abundance of caution until firm rules are established. However, early adopters of the SEC’s disclosure guidance may benefit from enhanced market credibility and stronger investor trust. For those able to navigate these challenges and the emerging guidance thoughtfully, the payoff could be significant in a regulatory environment that is slowly, if unevenly, moving toward clarity. 

The information is provided for informational and educational purposes only and should not be construed as legal advice. 

Authored by Nick Hoover, Alex Parkhouse, and Haebin Lee.