Understanding the US SEC Token Classification System

Author: Jack Inabinet Source: Bankless Translation: Shan Opa, Golden Finance

Last week, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) jointly issued a milestone regulatory guideline. This long-overdue joint clarification details when and how federal securities laws apply to crypto assets.

For a long time, the crypto industry has operated in a legal gray area. This new framework attempts to eliminate some uncertainty with a token classification system, helping to define under what conditions digital assets are considered securities.

Today, we will analyze this joint guideline and speculate on how it will ultimately categorize mainstream digital assets.

Digital Goods

According to the SEC’s clarification, “digital goods” refer to crypto assets whose value derives from their functional role within the crypto ecosystem and market supply and demand.

This broad definition covers many utility tokens on established blockchain networks. The SEC explicitly lists 16 such crypto assets, including: Aptos (APT), Avalanche (AVAX), Bitcoin (BTC), Bitcoin Cash (BCH), Cardano (ADA), Chainlink (LINK), Dogecoin (DOGE), Ether (ETH), Hedera (HBAR), Litecoin (LTC), Polkadot (DOT), Shiba Inu (SHIB), Solana (SOL), Stellar (XLM), Tezos (XTZ), XRP.

While the SEC does not specify why these tokens are classified as non-securities digital goods, the guideline emphasizes that they do not meet the legal definition of “securities,” and thus are not automatically considered securities.

The SEC states that its use of the term “digital goods” is strictly based on economic principles, describing a typical characteristic of non-security digital assets.

The guideline also notes that, except for stablecoins compliant with the GENIUS Act, any crypto asset that meets the Commodity Exchange Act’s definition of “commodity” can be recognized as a true commodity and thus fall under CFTC’s specific regulation.

The SEC did not mention but suggests that other popular tokens that could be classified as “digital goods” include:

• BONK: Solana ecosystem meme coin, which has developed governance and various utility functions since launch
• CC: Canton blockchain native utility token used for trading, settlement, data synchronization, and asset transfer
• EIGEN: EigenLayer ecosystem re-staking utility token used to provide economic security
• ETC: Ethereum proof-of-work version, recognized by the SEC as a non-security digital commodity
• HYPE: Hyperliquid network native gas and staking token used for paying fees and network security
• STX: Stacks Bitcoin layer-2 network native gas and staking reward token
• SUI: Sui network native gas and staking token
• TAO: Bittensor network native token used to incentivize machine learning contributions in decentralized AI markets
• TRX: Tron network native gas and staking token
• XMR: Monero network native token, focused on privacy, used for paying fees and maintaining network security

Digital Collectibles

Former SEC Chairman Gary Gensler was asked in Congress whether “tokenized Pokémon cards are securities.” He did not give a clear answer, only stating that more information is needed to make a determination.

Now, it seems the crypto industry has finally received the long-awaited conclusion.

The latest proposed SEC guideline indicates that tokenized Pokémon cards can be classified as “digital collectibles,” but more information is needed before confirming their non-security status.

This category applies to crypto assets intended for collection purposes, including rights related to representing or transferring artworks, music, videos, trading cards, in-game items, and previously defined meme coin rights.

Similar to physical collectibles, even if the holder has commercial rights to underlying intellectual property, digital collectibles do not confer any corporate ownership rights and are therefore inherently non-securities.

The SEC explicitly classifies CryptoPunks, Chromie Squiggles, fan tokens, WIF, and VCOIN as digital collectibles.

Although the SEC groups meme coins as digital collectibles, it also clarifies that if such tokens have functional roles within related crypto ecosystems, they may transform into digital commodities.

Furthermore, the SEC states that, like physical collectibles, most fragmented collectibles are likely to constitute securities because buyers rely on third-party management. For example, providing physical custody of tokenized Pokémon cards may constitute a “management activity,” triggering federal securities registration requirements.

The SEC did not mention but suggests that popular projects that might meet the “digital collectibles” definition include:

• Beeple’s “Everydays: The First 5000 Days”: the most expensive NFT ever, valued for its cultural significance, artist reputation, and historical position in the NFT market
• PEPE: internet meme coin, value derived from community sentiment and virality
• Pudgy Penguins and PENGU: community-based NFT and token brands centered around penguin IP
• Quantum Cats: on-chain digital collectibles of Bitcoin inscriptions, valued for scarcity and Bitcoin ecosystem status
• Saga Monkes: limited-edition NFTs linked to Solana Saga phone, valued for rarity, early holder status, and ecosystem connection

Digital Tools

Digital tools are crypto assets designed to achieve specific functions. They possess inherent utility value, many of which are soulbound tokens (SBTs), non-transferable, permanently bound to a single user.

Importantly, the SEC explicitly states that digital tools must not have intrinsic economic rights or benefits, such as generating passive income, or entitlement to future revenues, profits, or asset distributions.

The SEC lists various use cases for digital tools, including membership, tickets, certificates, property deeds, identity badges, etc., and classifies Ethereum Name Service (ENS) and CoinDesk’s “Microcosms” NFT conference tickets as digital tools.

Other digital assets that may meet the “digital tools” criteria include:

• FanDome NFT: comic-themed NFTs distributed free to attendees of the 2021 DC fan virtual conference
• POAP: digital badges (NFTs) that verify participation in offline/online events
• Propy NFT: on-chain digital proof of legal property ownership
• VeeFriends: NFT series created by Gary Vaynerchuk, used to unlock exclusive events like VCON
• World ID: “personality proof” credential issued by the Sam Altman-led World project

Stablecoins

The SEC’s definition of non-security stablecoins is very straightforward: payment stablecoins as defined by the GENIUS Act, effective January next year, will be considered non-securities.

Therefore, the SEC will not impose registration requirements on issuance and redemption of stablecoins that meet this law (though such stablecoins will still be under comprehensive regulation by other U.S. authorities).

The guideline also clarifies that, before the GENIUS Act takes effect, existing stablecoins under current definitions remain non-securities and outside SEC regulation. To qualify, stablecoins must not entitle holders to any interest, profit, or other returns, and reserves must be fully backed by USD and/or other low-risk, highly liquid assets.

While the SEC did not specify particular tokens, stablecoins that meet the “covered stablecoin” definition include:

• PYUSD: PayPal-issued stablecoin, custody by Paxos
• USAT: Tether’s latest USD stablecoin, designed to comply with the GENIUS Act
• USDC: Circle-issued, fully collateralized 1:1 with USD and risk-free USD assets
• KlarnaUSD: Stablecoin launched by buy-now-pay-later giant Klarna, issued by Stripe’s Bridge

Digital Securities

Arguably the most impactful yet most ambiguous part of the SEC’s guidance is the definition of digital securities.

The SEC firmly states: any digital asset that does not pass the Howey test is a security. This determination often involves lengthy legal battles.

The SEC also classifies tokenized versions of products already recognized as securities—such as tokenized money market funds, stocks, and other structured investments—as digital securities.

However, this does not mean all “wrapped” tokens are securities. The SEC explains that protocol mining, staking, and wrapping non-security crypto assets do not constitute securities issuance or sale; the guideline further clarifies that some airdrops do not meet the “money investment” element under the Howey test.

Nevertheless, the SEC still cannot give a straightforward answer on when a digital asset becomes a security. In each case, how the project markets and promotes the asset will determine whether it constitutes an investment contract (i.e., a security).

Originally non-security crypto assets can be classified as securities if issued or sold as an investment contract meeting the Howey test.

Additionally, a non-security crypto asset initially issued as an investment contract does not remain a security forever; once the original investment contract is fulfilled or the project fails to deliver promised development and functionality, the asset can revert to non-security status.

The SEC did not specify which assets are securities, but it’s worth noting that, despite a court ruling that XRP’s certain sales violated securities laws, the SEC’s guidance still classifies it as a non-security “digital commodity.”

While this guidance moves toward clearer regulation, it also increases ambiguity in securities classification, extending existing federal securities laws to digital assets and exposing projects with undeveloped or future utility features to regulatory risks.

Digital goods, digital collectibles, digital tools, and stablecoins are non-securities themselves, but if issued or sold as investment contracts, project issuers will still be subject to federal securities laws.