SEC Chair Unveils ‘Project Crypto’ Plan to Classify Digital Assets, End Perpetual Securities Label

SEC Chairman Paul Atkins just announced “Project Crypto,” a major shift to clarify crypto regulation under existing securities laws.

Speaking at the Federal Reserve Bank of Philadelphia, Atkins said the Commission will soon propose a token taxonomy based on the Howey test.

Atkins says most crypto tokens are not securities, rejecting the idea that a token sold in an initial investment contract remains a security forever.

“Commissioner Peirce has rightly observed that while a project’s token launch might initially involve an investment contract, those promises may not remain forever. Networks mature. Code is shipped. Control disperses. The issuer’s role diminishes or disappears. At some point, purchasers are no longer relying on the issuer’s essential managerial efforts, and most tokens now trade without any reasonable expectation that a particular team is still at the helm.

In short, a token is no more a security because it was once part of an investment contract transaction than a golf course is a security because it used to be part of a citrus grove investment scheme. Once the investment contract can be understood to have run its course, or expires by its own terms, the token may continue to trade, but those trades are no longer “securities transactions” simply by virtue of the token’s origin story.”

Atkins says the proposed crypto investment categories include:

• Digital commodities (network tokens from functional, decentralized systems) – not securities.
• Digital collectibles (art, memes, game items) – not securities.
• Digital tools (memberships, tickets) – not securities.
• Tokenized securities (blockchain-tracked stocks, bonds) – remain securities.

Atkins says the SEC is drafting exemptions for investment-contract tokens to trade on CFTC or state-regulated platforms.

As for crypto fraud, Atkins says the agency will always prosecute bad actors.

But he believes innovation should face clear rules and not obstruction.

“Importantly, this does not mean that fraud is suddenly acceptable or that the Commission’s interest has waned. Anti-fraud provisions can still apply to misstatements and omissions made in connection with the sale of an investment contract, even when the underlying asset is not itself a security.

Of course, to the extent the tokens are commodities in interstate commerce, the CFTC also has anti-fraud and anti-manipulation authority to pursue misconduct in the trading of these assets.

What it does mean is that we will align our rules and enforcement with the economic reality that investment contracts can end and networks can stand on their own.”

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