On March 17, 2026, the U.S. Securities and Exchange Commission (the “SEC”) issued an Interpretive Release (the “Release”) on the application of federal securities laws to certain digital assets and digital asset transactions. The Release was issued in partnership with the Commodity Futures Trading Commission (the “CFTC”) in furtherance of “Project Crypto”, the joint initiative between the SEC and the CFTC launched in July 2025 to establish a clearer regulatory framework around digital assets.
In the Release, the SEC classifies digital assets into five categories: (i) digital commodities; (ii) digital collectibles; (iii) digital tools; (iv) stablecoins; and (v) digital securities. The SEC states that, of the five categories, only digital securities are themselves securities that will be subject to securities laws. However, the SEC noted, while digital commodities, digital collectibles, and digital tools are not themselves securities, they could be offered and sold subject to an investment contract that is a security. Furthermore, stablecoins also may or may not be securities depending on their characteristics.
The categories of digital assets that the SEC has proposed are not securities “do not have intrinsic economic properties or rights, such as generating a passive yield or conveying rights to future income, profits, or assets of a business enterprise or other entity, promisor, or obligor” and do not “represent a digitized form of [securities], including an investment contract”.
In addition to providing a general framework for what is and is not a “digital security”, the Release specifically names certain digital assets that the SEC has explicitly determined are not securities, which are included below.
The Scope and Extent of the Release’s Guidance
Before we dive into what the Release says, it is important to clarify what this Release actually is and what it is not. The Release is an interpretive rule, a form of nonbinding guidance, which explains how the SEC interprets and intends to apply the Howey test in the context of digital assets. We can expect that the Release will inform the current SEC’s enforcement posture with respect to digital assets because if the SEC were to take a different approach to enforcement without first retracting the Release, defendants to any such enforcement action would have a strong argument that they reasonably relied on the Release. Nonetheless, without undergoing any formal rulemaking process, the Release is changeable. In other words, the next SEC could undo this interpretation and go back to the Gensler-era posture at any point.
The Release is not a formal rule, is exempt from the Administrative Procedure Act’s notice-and-comment rulemaking requirements, has not changed any existing law or created any new law, and does not carry the “force and effect of law”. The Release will serve as persuasive, but not controlling, authority in court. While they may consider the Release, courts retain the final authority to interpret regulations and could apply the Howey test differently. However, now that the SEC has provided clearer guidance on how it classifies digital assets, enforcement actions around this topic, and the need for courts to address this question, should become less common.
Digital Assets and Digital Asset Activities Not Subject to Securities Laws
Digital Commodities. Per the Release, a digital commodity is a digital asset that is “intrinsically linked to and derives its value from the programmatic operation of a crypto system that is “functional” …rather than from the expectation of profits from the essential managerial efforts of others.” A digital commodity does not have intrinsic economic properties or rights, such as generating a passive yield or conveying rights to future income, profits, or assets of a business enterprise or other entity, promisor, or obligor. Rather, a digital commodity has intrinsic value derived from the value of the goods and services that may be produced or accessed using that commodity, as well as from supply and demand dynamics. The SEC states that a digital commodity itself is not a security.
Digital Collectibles. Per the Release, a digital collectible is a digital asset that is designed to be collected or used and may represent or convey rights to artwork, music, and videos, among other things. Digital collectibles generally have artistic, social, or cultural value and are not purchased as an investment in any business enterprise. Some digital collectibles, like “meme coins,” have limited or no functionality. Digital collectibles do not provide holders with any legal rights or interest in, or with respect to, a business enterprise or other entity, promisor, or obligor associated with the creator of the digital collectible. The SEC states that a digital collectible itself is not a security.
Digital Tools. Per the Release, a digital tool is a digital asset that performs a practical function and are commonly issued for use in connection with crypto systems to perform practical functions within such systems. Their value is derived from their practical functionality and not from any intrinsic economic properties or rights. Digital tools are acquired only for their functional utility and not for an expectation to realize profits from the managerial efforts of others. The SEC states that a digital tool itself is not a security.
Stablecoins. With respect to Stablecoins, the Release makes reference to the GENIUS Act, which was enacted in July 2025. The GENIUS Act excludes any “payment stablecoin issued by a permitted stablecoin issuer” from the definition of security. The Release states that these payment stablecoins will categorically not be securities following the effective date of the GENIUS Act. Additionally, because the GENIUS Act is not yet effective, the SEC makes reference to a statement previously issued by the Division of Corporation Finance in which it characterized certain stablecoins as “Covered Stablecoins” and states that Covered Stablecoins are also not securities. However, stablecoins other than payment stablecoins and Covered Stablecoins may be securities depending on the facts and circumstances.
Protocol Mining, Protocol Staking, Wrapping, and Airdrops. Per the Release, the SEC has clarified that mining digital commodities on PoW networks (“Protocol Mining”) and staking digital commodities on PoS networks (“Protocol Staking”), wrapping, and airdropping in the manners described in the Release do not involve the offer and sale of securities.
However, the SEC provides some exceptions. First, the offer and sale of a Staking Receipt Token (newly generated digital assets issued in “Liquid Staking”) that is a receipt for a digital security or a non-security digital asset that is subject to an investment contract is a security. Second, the offer or sale of a “Redeemable Wrapped Token” is a receipt for a digital security or non-security digital asset that is subject to an investment contract is the offer or sale of a security. Third, the Release does not address, and therefore does not exclude, airdrops of digital securities.
Digital Assets and Transactions Subject to Securities Laws
Digital Securities. According to the Release, a digital security, or “tokenized” security, is a financial instrument that is included in the U.S. Securities Exchange Act of 1934 definition of “security” that is formatted or represented by a digital asset. Importantly, the SEC has clarified that a digital security is a security regardless of whether it is issued or represented offchain or onchain. This Release clarifies that all digital securities are subject to federal securities laws.
Non-Security Digital Assets Subject to Investment Contracts. The SEC clarifies that while not a security itself, a non-security digital asset can become subject to an investment contract “when an issuer offers it by inducing an investment of money in a common enterprise with representations or promises to undertake essential managerial efforts from which a purchaser would reasonably expect to derive profits.” When a non-security digital asset is subject to an investment contract, the offer and sale of such non-security digital asset would constitute a securities transaction which must be registered under the Securities Act or conducted under an exemption from registration.
However, it is important to note that the SEC states that a non-security digital asset that was offered and sold subject to an investment contract will not necessarily remain subject to that investment contract if a purchaser could no longer reasonably expect the issuer’s representations to engage in “essential managerial efforts” to remain connected to the asset. This is described as “separation” of a non-security digital asset from the issuer’s representations. Per the Release, such “separation” can occur once the issuer has fulfilled its representations or when an issuer has failed to satisfy its representations in a manner in which it is no longer reasonable for a purchaser to expect the issuer to satisfy its representations.
Practical Guidance for Fund Managers
The Release provides some much-needed clarity on where the SEC thinks digital assets fit into the securities landscape, and it signifies the first concrete step towards regulatory clarity, the architecture of which has yet to be built. Depending on the circumstances, there may be some private fund managers who can get comfortable that their investment strategies do not involve trading “securities.” However, we advise that managers proceed with caution before taking this position. To take this position, a fund manager would need to:
- conduct diligence on every single asset they buy to assess whether its issuers made the kinds of representations and promises that give rise to an investment contract;
- if so, analyze whether those representations and promises have been satisfied or abandoned to sufficiently demonstrate “separation”;
- keep records documenting such analyses; and
- be aware that, without formal rulemaking, the next SEC could undo the Release with immediate effect.
Managers should consider whether the above process and the uncertainty surrounding it is simpler than complying with the Adviser’s Act.
Additionally, while the Release provides clarity on which digital assets will clearly fall outside of the SEC’s purview, it should not be overlooked that the Release also provides clarity on which digital assets may now more clearly fall within the CFTC’s. While the main text of the Release is aimed at addressing the SEC’s jurisdiction, or lack thereof, over certain digital assets and digital asset transactions, Footnote 48 states “any non-security crypto asset, other than a ‘payment stablecoin issued by a permitted payment stablecoin issuer,’…could meet the definition of “commodity” under the Commodity Exchange Act (the “CEA”).
Under current CFTC rules, engaging in derivative transactions based on digital commodities would make a fund manager a commodity pool operator (“CPO”) and/or commodity trading advisor (“CTA”), which would require registration with the CFTC unless an exemption from registration is available. Depending on the registration or exemption type, fund managers could be subject to additional rules, including those related to the qualification of its investors to invest in the fund.
It is also worth noting that the CLARITY Act, a recently passed House bill, proposes to expand the CEA’s definition of CPO or CTA to include those that trade or advise with respect to “digital commodities”. This proposed definition notably would not only capture those engaging in digital asset derivative transactions, but also spot-market transactions as well. If the CLARITY Act is enacted, many digital asset fund managers will become subject to CFTC registration requirements.
We will be keeping our eyes peeled for any ongoing developments and will be ready to advise our clients on how they may be impacted by any new rules or regulations. Please reach out if you have any questions.
Karl Cole-Frieman, Managing Partner karl@colefrieman.com
Bart Mallon, Managing Partner bmallon@colefrieman.com
Lilly Palmer, Chair, Investment Funds lpalmer@colefrieman.com
John T. Araneo, Partner jaraneo@colefrieman.com
Garret Filler, Partner gfiller@colefrieman.com
Scott Kitchens, Partner skitchens@colefrieman.com
Frank J. Martin, Partner & General Counsel fmartin@colefrieman.com
Dave Rothschild, Partner drothschild@colefrieman.com
Anthony Wise, Partner awise@colefrieman.com
Erica Stefanik, Senior Associate estefanik@colefrieman.com
