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Crypto Insight
2 days ago
- Business
- Crypto Insight
SEC's 2025 guidance: What tokens are (and aren't) securities
The US Securities and Exchange Commission's Division of Corporation Finance (CorpFin) released a comprehensive statement on April 10, 2025, outlining what companies need to disclose when offering or registering crypto asset securities. This statement (the SEC's 2025 guidance) aims to reduce ambiguity regarding classifications of crypto tokens under US securities laws. It updates how the Howey test is used and introduces a clearer system to tell the difference between security tokens and non-security tokens. The Howey test is a decades-old framework used to determine whether a crypto asset qualifies as a security. Four criteria that the test applies are investment of money, an expectation of profit, a common enterprise and reliance on the efforts of others. A major highlight of the SEC 2025 guidance is the 'reasonable expectation of profit' criterion. The SEC emphasizes that if token buyers expect profits based primarily on the efforts of a centralized team or promoter, the token is likely a security. The SEC noted, 'Where entrepreneurial efforts drive price appreciation, tokenholders effectively invest in a common enterprise.' The guidance also introduces a three-pronged framework: Initial sale context: Whether the token was marketed as an investment Whether the token was marketed as an investment Ongoing use: If the token provides functional utility on a decentralized network If the token provides functional utility on a decentralized network Issuer influence: Degree of control retained by the founding team or foundation. Tokens with no expectation of profit, like Ether after the Merge, or stablecoins backed by real, transparent reserves, usually don't count as securities. But tokens tied to governance rights or revenue sharing could still be classified as securities, depending on how they work. Did you know? The Howey test was first used in 1946. Despite being older than the internet, it still shapes whether digital assets qualify as securities today. The SEC's 2025 rules say crypto tokens are likely securities if they act like investment contracts. This means tokens sold with promises of profits, driven by a central team's efforts, will be categorized as securities. The SEC's 2025 guidance outlines specific scenarios in which crypto tokens will likely be classified as securities. These typically involve projects that are still centrally controlled, promote profit expectations, or offer limited utility at the time of sale. Below are the common characteristics that may trigger securities classification: ICOs with profit-centric marketing: Tokens launched through initial coin offerings (ICOs) are a major target, especially when the project team markets them based on future price appreciation or project success. Tokens launched through initial coin offerings (ICOs) are a major target, especially when the project team markets them based on future price appreciation or project success. Profit-sharing governance tokens: Governance tokens that offer dividends, revenue sharing or protocol profits can be classified as securities due to their resemblance to traditional investment contracts. Governance tokens that offer dividends, revenue sharing or protocol profits can be classified as securities due to their resemblance to traditional investment contracts. Utility tokens with financial incentives: Even so-called utility tokens may qualify as securities if buyers are led to believe the tokens will increase in value or offer financial benefits. Even so-called utility tokens may qualify as securities if buyers are led to believe the tokens will increase in value or offer financial benefits. Legal precedents from court rulings: In the LBRY case (2023), the token was ruled an unregistered security. Similarly, the Ripple case determined XRP's institutional sales were securities, while public sales were not. Tokens with centralized control or pre-mining: The SEC warns that tokens that are pre-mined, centrally managed or promoted with value-growth promises lack decentralization and are likely to fall under securities regulation. In 2025, the SEC stressed that tokens controlled by a core team, pre-mined or limited in supply with promises of value growth will likely be securities. These tokens often aren't decentralized enough or lack user utility at the time of sale, reinforcing their classification under federal securities laws. The SEC's 2025 rules say crypto tokens aren't likely securities if they are used like tools or goods, not for making money. These tokens let you use a platform's services, like in-game items, digital access or nontransferable membership credits, and aren't pitched as investments. While the SEC's 2025 guidance focuses on investor protection, it also recognizes that not all tokens meet the criteria of securities. Tokens that are decentralized, utility-driven or serve non-investment purposes may fall outside the scope of securities laws. Below are key characteristics that reduce the likelihood of a token being classified as a security: Fiat-backed stablecoins with transparent reserves: Stablecoins that are 1:1 backed by fiat currency, regularly audited and designed for payments rather than investments are generally not viewed as securities by the SEC. Stablecoins that are 1:1 backed by fiat currency, regularly audited and designed for payments rather than investments are generally not viewed as securities by the SEC. Layer-1 utility tokens for network operations: Tokens like Ether, Solana and Avalanche are used to pay gas fees and validate transactions, not for profit-seeking. Their decentralized validator networks and functional utility lower the chances of being labeled securities. Tokens like Ether, Solana and Avalanche are used to pay gas fees and validate transactions, not for profit-seeking. Their decentralized validator networks and functional utility lower the chances of being labeled securities. Lack of profit marketing and central control: Tokens that aren't marketed with profit promises or don't rely on a central team for value growth are less likely to be securities. Their value is derived from network use, not speculation. Tokens that aren't marketed with profit promises or don't rely on a central team for value growth are less likely to be securities. Their value is derived from network use, not speculation. Decentralized and open-source governance: Projects that are community-driven, open-source and have distributed control over rewards or updates support non-security classification. These traits show the token functions as a digital tool, not an investment contract. Did you know? Under the 2025 guidance, tokens with genuine utility on decentralized networks may escape securities classification. It is a major shift from earlier years of the 'if it moves, it is a security' rule. The SEC's 2025 guidance for the crypto industry marks a pivotal moment, offering much-needed clarity on which tokens are classified as securities. It will reshape how projects launch, how tokens are traded and how platforms manage regulatory risk. For token issuers: Follow rules, register or change your approach The SEC's 2025 rules push token issuers to check whether their tokens count as securities. If tokens are promoted for profits or controlled centrally, issuers may need to register with the SEC or redesign tokens to focus on use and decentralization. Not following rules could lead to penalties, lawsuits or removal from platforms. New projects should plan for legal reviews from the start. For investors: Fewer tokens, but safer markets Investors might find fewer tokens available, especially if they are seen as unregistered securities. Tokens in legal trouble or those flagged by the SEC could be removed or restricted on exchanges. While this might limit quick-profit chances, it could make markets safer by cutting down on scams or risky projects. For exchanges: Stricter rules and more warnings Crypto exchanges, both centralized and decentralized, will likely set stricter standards for listing tokens, requiring more legal checks and more explicit risk warnings. US platforms may avoid tokens labeled as securities to steer clear of trouble. Exchanges might also need to register as securities brokers or alternative trading systems, raising costs and responsibilities. Did you know? The phrase 'reasonable expectation of profit' is the central point in the SEC's 2025 rules. If you expect a token's value to rise in the future and profit from it, it is a security. The SEC's 2025 rules still provide some confusion, especially for tokens that seem like both tools and investments. For example, governance tokens don't directly pay profits but affect decisions that boost protocol income. If tokenholders gain from rising prices due to treasury earnings, fees or staking rewards, they might be considered securities. Decentralized finance (DeFi) and decentralized autonomous organizations (DAOs) make things trickier. Many DAOs act like decentralized companies, handling funds, giving out rewards or teaming up with businesses. This raises questions like when does a community-run project act like a centralized company, or does voting protect it from securities laws? To deal with this, legal opinions and SEC no-action letters are the key. A strong legal memo can support a project's claim that its token falls outside securities law, though it does not guarantee immunity. Meanwhile, SEC no-action letters, in which the agency agrees not to pursue enforcement, offer clarity but are rare and context-specific. The 2025 rules clarify, but classifying tokens depends on each case, needing careful steps through changing legal, tech and financial worlds. Legal and compliance experts appreciate the more explicit token classification rules, which help projects evaluate risks. However, many note that the guidelines still allow subjective interpretations, particularly regarding decentralization and governance tokens. Industry groups and developers worry the rules may hinder crypto innovation in the US. They argue that focusing on 'profit expectations' and issuer control might wrongly label decentralized projects as securities, even without active promoters. For example, Coinbase legal officer Paul Grewal stated in a letter to the SEC's Crypto Task Force on March 19, 2025, that some crypto activities, like token airdrops and selling tokens with clear uses, shouldn't be treated as securities transactions. He contended these activities don't involve raising money or promising profits based on a company's ongoing work, so traditional securities laws may not apply to these decentralized actions. At the 'SEC Speaks' event in May 2025, SEC Commissioner Hester Peirce expressed concern about the commission's tendency to rely on enforcement actions rather than clear rulemaking. The SEC Speaks conference is an annual event where the SEC provides updates on its current initiatives and priorities. Peirce noted that this approach creates legal uncertainty and practical difficulties, complicating compliance for cryptocurrency firms and potentially hindering innovation. Supporters of the SEC's approach believe the guidance promotes investor protection and regulatory consistency, especially after years of confusion. Critics, however, see it as regulation by enforcement, claiming it burdens startups and creates legal uncertainty. For instance, legal analyst Jake Chervinsky noted that the SEC had indeed issued helpful guidance on crypto. Anderson PC, a boutique law firm, on the other hand, termed the SEC crypto guidance a flop, arguing that it wasn't clear who the rule applied to. The SEC's 2025 cryptocurrency guidelines differ significantly from the EU's Markets in Crypto-Assets (MiCA) regulation in their scope, structure and approach. The SEC's rules focus on applying the Howey test to determine what tokens are securities. Decisions about what tokens are and aren't securities are made on a case-by-case basis. On the other hand, MiCA provides a detailed legal framework that divides crypto assets into clear categories such as utility tokens, asset-referenced tokens and e-money tokens. It sets specific licensing and operational rules for each category, ensuring clarity for issuers and service providers. Unlike the SEC, MiCA does not broadly assume all tokens are securities and focuses on consumer protection, market integrity and stablecoin regulation. Overall, while the SEC's approach is more enforcement-driven and investor-risk focused, MiCA is rule-based, offering a clearer compliance path for the European market. Source:
Arabian Post
4 days ago
- Business
- Arabian Post
SEC Draws Boundary on Meme Coin Oversight Amid TRUMP Token Turmoil
The U.S. Securities and Exchange Commission has clarified that meme coins, including the TRUMP token, generally fall outside its regulatory jurisdiction, leaving investors without traditional protections. This stance comes as the TRUMP token, launched on January 17, 2025, experienced a dramatic 80% decline from its peak of $72.60, resulting in approximately $2 billion in investor losses, according to Chainalysis. SEC Commissioner Hester Peirce, leading the agency's crypto task force, emphasized that many meme coins do not meet the criteria of securities under existing laws. She stated that these tokens are often more akin to collectibles, lacking the characteristics that would subject them to SEC oversight. The SEC's Division of Corporate Finance reinforced this view in a staff statement, noting that meme coins typically do not satisfy the Howey Test, which determines what qualifies as a security. Despite the SEC's position, the TRUMP token's rapid rise and fall have raised concerns. Launched by President Donald Trump, the token's market capitalization soared to $14.5 billion before plummeting to $3 billion. While investors faced significant losses, the Trump Organization and its partners reportedly earned around $100 million in trading fees. ADVERTISEMENT The SEC's approach marks a shift from previous enforcement strategies. Under former Chair Gary Gensler, the agency pursued aggressive actions against crypto entities. However, the current administration, with Peirce at the helm of crypto regulation, is moving towards establishing clear policies rather than relying on enforcement. This change aims to provide a more innovation-friendly environment for digital assets. Critics argue that the lack of regulatory oversight for meme coins leaves investors vulnerable to market manipulation and fraud. They point to the TRUMP token's volatility and the significant profits earned by its promoters as evidence of potential exploitation. Ethics experts have also raised concerns about conflicts of interest, given President Trump's dual role as a political leader and a crypto entrepreneur. In response to these developments, some lawmakers are calling for greater transparency and regulation. Representative Jamie Raskin has launched an investigation into a private dinner hosted by President Trump for top investors in the TRUMP token, citing potential ethical and legal issues. The event allowed investors who purchased large amounts of the token to attend, with many top holders' identities remaining anonymous. While the SEC maintains that it is not a 'merit regulator' and does not endorse or evaluate the quality of investments, the agency's stance on meme coins underscores the importance of investor due diligence. As the crypto market continues to evolve, the balance between fostering innovation and protecting investors remains a contentious issue.
Yahoo
22-03-2025
- Business
- Yahoo
Proof-of-Work Crypto Mining Doesn't Trigger Securities Laws, SEC Says
Proof-of-work cryptocurrency mining does not trigger federal securities laws, according to a Thursday staff statement from the U.S. Securities and Exchange Commission (SEC) which told mining operators they do not need to register their transactions with the regulator. The statement, published by the SEC's Division of Corporation Finance, declared that both solo proof-of-work crypto mining and pooled proof-of-work crypto mining do not meet the definition of a securities transaction under the Howey Test — the legal framework used to determine whether a transaction represents an investment contract — because they are 'not undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.' The statement puts to rest any lingering fears that the SEC's enforcement division could turn its gaze on proof-of-work crypto miners. Though the agency, under the leadership of former Chair Gary Gensler, begrudgingly admitted that bitcoin was a commodity rather than a security, the agency's enforcement suit against Utah-based Green United, an alleged ponzi scheme accused of defrauding customers in a cloud mining scheme, prompted concerns among some in the industry that the agency would eventually crack down on legitimate crypto miners. The SEC said that Thursday's statement is 'part of an effort to provide greater clarity on the application of the federal securities laws to crypto assets' — something the industry has been pushing for for years. Under the new leadership of Acting Chair Mark Uyeda, who established a Crypto Task Force spearheaded by crypto-friendly Commissioner Hester Peirce, the agency has rapidly begun reversing course on its approach to crypto, dropping lawsuits and investigations started under Gensler and repealing the controversial Staff Accounting Bulletin 121. Thursday's staff statement comes shortly after the SEC put out a similar staff statement in February declaring most memecoins to be outside the regulator's jurisdiction. Read more: As Congress Talks Up Its Earth-Shaking Bill, Regulators Are Already at Work Under its new leadership, the SEC has signaled a much greater willingness to work with the crypto industry to craft better, clearer regulations moving forward. On Friday, the agency will host a roundtable discussion on what makes a cryptocurrency a security – the first in a series of roundtable discussions between the regulator and industry participants.
Yahoo
20-03-2025
- Business
- Yahoo
Bitcoin miners get green light as SEC confirms mining isn't a security
The U.S. Securities and Exchange Commission announced on March 20 that Bitcoin mining does not fall under securities and does not require registration. In a statement, the SEC's Division of Corporation Finance stated that "Protocol Mining" on proof-of-work (PoW) networks does not meet the criteria of an "investment contract" under the Howey Test, a legal standard for determining securities. The announcement cleared the fog for miners and mining companies, stating that mining operations would not be subject to securities laws. According to the SEC, Bitcoin miners, whether solo or part of a mining pool, are not engaging in investment activities that depend on the managerial efforts of others. Instead, miners independently contribute computational power to secure the network and validate transactions, earning rewards in the form of newly minted Bitcoin. "A miner's expectation to receive rewards is not derived from any third party's managerial or entrepreneurial efforts upon which the network's success depends," the statement clarified. The SEC further stated that mining pools, which aggregate computational resources to increase the likelihood of mining new blocks, do not change the fundamental nature of mining. Even in a pool, "individual miners still perform the actual mining activity by contributing their computational power to solve cryptographic puzzles." Pool operators primarily serve administrative functions, distributing rewards proportionally to contributors. The SEC's decision is for both individual miners and mining pools. Solo miners validate transactions and earn Bitcoin from their own computing resources. A mining pool comprises several miners who share their resources to gain a better chance of solving the puzzle and are rewarded. Mining pools and their operators are not considered securities issuers because miners are still dedicating computational power rather than relying on the efforts of others, the agency also confirmed. Sign in to access your portfolio
Yahoo
10-03-2025
- Business
- Yahoo
Prediction: XRP's Price Is Going to Soar After April 16
For the past four months, XRP (CRYPTO: XRP) has easily been one of the top performers in the crypto market. Over that time period, XRP is up a staggering 400% and was recently trading around $2.50. But the best may be yet to come. XRP holders may soon get some fantastic news about an important Securities and Exchange Commission (SEC) lawsuit that has dragged on for more than four years now. If the case is finally dismissed, XRP could soar in value. If you haven't been following the long, drawn-out legal proceedings involving XRP, Ripple (the company behind the XRP token), and the SEC, consider yourself lucky. The case, which started in December 2020, has taken so many twists and turns that it has been almost impossible to keep up. Just when the case seems to be over, it somehow extends even longer. At its core, the lawsuit comes down to a single question: Is XRP a security or a commodity? And, believe it or not, to answer that question, the courts are using a legal precedent (known as the Howey Test) from a 1946 Supreme Court case involving a company selling Florida orange groves. That might help to explain why the case has dragged on so long: If you think comparing apples to oranges is difficult, what about comparing cryptos to oranges? The good news is that it looks like a final decision is coming between now and April 16, which is the next anticipated court date for the case. After more than four years of countless legal back-and-forth, we might have a final resolution. And there's nothing the market likes better than certainty. Thus far in 2025, the SEC has already dismissed several high-profile crypto lawsuits. But after filing an appeal in January, it has been strangely silent about the one involving Ripple. Given the clear pro-crypto emphasis of the Trump administration, the thinking now is that, whatever happens next, it will be in XRP's favor. As hard as the SEC has been pressing its case, it simply doesn't hold the right cards any more. Even if the SEC finds a way to extend this case beyond April, the Trump administration has several important levers it can pull to end this once and for all. Some have speculated that Trump could send Elon Musk and DOGE to look into activity at the SEC. Or he might encourage the recently formed Senate Crypto Subcommittee to investigate the SEC for regulatory overreach. And if that doesn't work, he might simply sign an executive order. The sky's the limit for how much higher XRP might go. In a best-case scenario that involves only the final resolution of the SEC court case, it's possible that XRP could reclaim its all-time high of $3.84. But let's think bigger. XRP could be included as part of the new Crypto Strategic Reserve proposed by the Trump administration, so it's easy to find price forecasts as high as $10 for XRP. In fact, some analysts think that XRP might eventually soar as high as $100 as long as the entire crypto market moves higher. Moreover, there's another factor that could send XRP higher: the launch of a new spot exchange-traded fund (ETF). The likelihood of XRP getting a spot ETF this year will be enhanced considerably if the regulatory cloud over Ripple and XRP lifts. The launch of a new spot ETF is key, because it ensures a fresh new influx of investor money into XRP. Right now, Bloomberg projects the likelihood of a spot XRP ETF at 65%. That was based on the understanding that there's no way the SEC would approve an ETF if there are still regulatory issues swirling around XRP. So if the SEC case gets resolved by April, it becomes highly likely that a spot ETF might arrive later this year. What you need to know as an investor is that a very big catalyst is coming within the next 45 days, and it makes XRP very attractive as an investment target right now. So keep your powder dry. The lifting of the regulatory clouds over the crypto industry is creating plenty of new investment opportunities with significant upside potential. Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Nvidia: if you invested $1,000 when we doubled down in 2009, you'd have $292,207!* Apple: if you invested $1,000 when we doubled down in 2008, you'd have $45,326!* Netflix: if you invested $1,000 when we doubled down in 2004, you'd have $480,568!* Right now, we're issuing 'Double Down' alerts for three incredible companies, and there may not be another chance like this anytime soon.*Stock Advisor returns as of March 3, 2025 Dominic Basulto has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends XRP. The Motley Fool has a disclosure policy. Prediction: XRP's Price Is Going to Soar After April 16 was originally published by The Motley Fool Sign in to access your portfolio
