SEC Chairman Makes Major Announcement! 3 Types of Cryptocurrency ICOs Exempt from Regulation, Legal Fundraising Returns

U.S. Securities and Exchange Commission (SEC) Chairman Paul Atkins has announced that cryptocurrency ICOs (Initial Coin Offerings) related to network tokens, digital collectibles, or digital utility tools should not be considered securities and therefore fall outside the SEC’s jurisdiction. Currently, only tokenized securities will be regulated by the SEC. This means that even before market structure legislation is enacted, ICO fundraising could potentially revive in the United States.

Atkins’ Four-Category Token Classification System Ends the Gensler Era

“This is exactly what we want to encourage,” Atkins stated clearly on December 9 when responding to a question from Decrypt. “By our definition, these things do not fall under the category of securities.” This statement marks a decisive shift by the SEC from Gary Gensler’s era of strict enforcement to one that embraces innovation. Atkins specifically referenced the token classification system he introduced last month, which divides the crypto industry into four major categories of tokens.

This classification system is key to understanding the SEC’s new policy. Last month, Atkins pointed out that among these four categories, network tokens, digital collectibles, and digital utility tokens should not be considered securities. On Tuesday, Atkins went further, stating that ICOs for these three types of tokens should also be considered non-securities transactions—thus not regulated by the SEC.

Atkins made it clear that, as far as ICOs are concerned, the only token category the SEC should regulate is tokenized securities—representations of securities already regulated by the SEC that are traded on-chain. “ICOs go beyond all four of these aspects. Three of them fall under the jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC), so we’ll let them handle it, and we’ll focus on tokenized securities,” said Atkins.

This classification system stands in sharp contrast to the position during the Gensler era. Gensler insisted that nearly all cryptocurrency ICOs were securities issuances and must be registered with the SEC or seek exemptions. This stance led to widespread enforcement actions after the 2017 ICO boom, with the SEC suing many ICO issuers for illegally selling unregistered securities. Atkins’ new classification system essentially overturns the legacy of his predecessor’s policies.

CFTC Takes Over Regulation of Three Token Categories, Loosening Oversight

The CFTC and SEC have drastically different regulatory philosophies. The CFTC has traditionally been responsible for overseeing futures, options, and other derivatives markets, with a regulatory approach focused more on market efficiency and anti-manipulation rather than comprehensive investor protection through disclosure requirements. For issuers, CFTC’s regulatory threshold is much lower than the SEC’s. This means that ICOs conforming to the above three categories can proceed without SEC registration, greatly reducing compliance costs and legal risks.

This regulatory shift is far-reaching. Under Gensler, any project intending to conduct an ICO in the U.S. faced a lengthy and costly SEC registration process or risked prosecution. Many projects chose to exclude U.S. investors entirely to avoid SEC jurisdiction. Atkins’ new policy opens the door for these projects to return to the U.S. market.

However, this does not mean there will be no regulation at all. The CFTC will still have jurisdiction over these tokens, especially on anti-fraud and anti-manipulation matters. Overall, though, the CFTC imposes a much lighter regulatory burden than the SEC, giving innovators more room to operate.

Three Types of Crypto ICOs Exempted from SEC Regulation

Network Tokens: Tokens associated with decentralized blockchain networks, typically used for paying network fees, participating in governance, or as incentives. The functional attributes of such tokens make them more akin to commodities rather than investment contracts.

Digital Collectibles: Tokens referencing “internet memes, characters, current events, or trends”—usually meaning meme coins and NFTs. The main value of these assets derives from community consensus and cultural significance rather than expectations of investment returns.

Digital Utility Tokens: Tokens that provide tickets, memberships, or other practical functions, such as access to specific services or content. The utility of these tokens means they do not possess the typical characteristics of securities.

Three Catalysts for the Revival of ICO Fundraising

Atkins’ comments on Tuesday indicate that whether or not crypto market structure legislation is enacted, ICO fundraising booms could make a comeback. This development could be a major boon for companies seeking to raise funds by creating tokens and selling them to investors and the public. During the 2017 crypto boom, ICOs were all the rage, with projects raising billions of dollars this way.

The first catalyst is a significant increase in regulatory certainty. Atkins’ clear stance removes the biggest source of uncertainty. Projects now know that as long as their tokens fit the definitions of network tokens, digital collectibles, or digital utility tokens, they can conduct ICOs without violating SEC regulations. This clarity was completely lacking during the Gensler era.

The second catalyst is the SEC’s “Project Crypto” initiative. In July, Atkins stated that this initiative could pave the way for ICOs through institutional exemptions and safe harbor provisions. This means that even if some tokens occupy a gray area, projects may still be able to launch legally through certain exemption mechanisms.

The third catalyst is the maturing of market infrastructure. Compared to 2017, the current crypto ecosystem is much more advanced in terms of wallets, exchanges, custody, and compliance tools. This lowers the technical and operational barriers to ICOs, allowing a broader range of projects to participate.

The Largest U.S. Crypto Exchange Races to Launch ICO Issuance Platform

Even though the crypto market structure bill under consideration in the Senate would green-light the ICO process, industry leaders appear to be racing ahead with related projects—regardless of whether the legislation is enacted. Last month, the largest compliant U.S. crypto exchange launched a new ICO issuance platform. Previously, in October, the company acquired crypto fundraising and token issuance platform Echo for $375 million. Tokens generated through this platform are available for purchase by U.S. retail investors.

The actions of the largest compliant U.S. crypto exchange demonstrate the industry’s confidence in an ICO revival. The largest compliant U.S. crypto exchange would not launch such a significant product amid regulatory uncertainty. Its $375 million acquisition of Echo was clearly based on an accurate assessment of Atkins’ policy direction. The Echo platform specializes in providing compliance tools for token issuance, which is precisely the infrastructure needed for a new wave of ICOs.

This early move could give the largest compliant U.S. crypto exchange a huge first-mover advantage. If ICOs really do make a comeback, the exchange will earn fee revenue from each transaction and attract a large number of new projects and users to its ecosystem. Other exchanges and platforms may soon follow suit and launch similar services.