Opinion

SEC Chairman outlines preliminary digital asset taxonomy under Project Crypto

SEC Chairman outlines preliminary digital asset taxonomy under Project Crypto

From our blog

A&O Shearman on fintech and digital assets
Published Date
Nov 19 2025
Related people
Image of F. Dario de Martino
F. Dario de MartinoPartner, New York
Image of Susan Gault-Brown
Susan Gault-Brown Partner, Washington DC

On November 12, 2025, SEC Chairman Atkins delivered remarks previewing how the Securities and Exchange Commission may seek to categorize digital assets as part of Project Crypto, the Commission’s ongoing initiative to develop a more transparent regulatory framework for the U.S. digital asset market. Although the comments do not constitute rulemaking and are not binding on the Commission, they provide the clearest public indication to date of the conceptual structure the SEC may use as it considers future regulation.

Chairman Atkins emphasized that digital assets do not form a single regulatory category and rejected the premise that a token involved in an investment contract “must forever be a security.” Instead, the remarks advance a function-based taxonomy, grounded in “economic reality,” that distinguishes among different types of digital assets based on how they operate, the rights they convey, and the expectations of market participants.

I. Proposed Four-Category Framework

Chairman Atkins outlined four principal categories:

1. Digital Commodities 

Assets whose value is tied to the operation of a functional, decentralized protocol, rather than to managerial promises or the issuer’s ongoing efforts. The Chairman stated that “essential managerial efforts” require “explicit and unambiguous representations,” signaling that the absence of such representations may support treatment as a non-security.

2. Digital Collectibles

Tokens “designed to be collected,” including digital art, media, and similar items (aka NFTs). Where purchasers are not relying on managerial or entrepreneurial efforts for financial return, such assets are not viewed as securities.

3. Digital Tools

Tokens providing practical functionality, such as access rights, credentials, identity features, or membership. Where the token operates as an instrument of use rather than an investment, securities regulation would not apply.1

4. Tokenized Securities

Tokens representing traditional securities or financial instruments (e.g., equity interests, debt claims, or revenue-sharing rights). These remain subject to the federal securities laws in full.

 

Chairman Atkins noted that a token’s classification may change over time as a network matures or decentralizes, and that the analysis remains fact-specific.

II. Implications for Market Participants

While non-binding, the Chairman's remarks offer several important signals for market participants active in digital assets:

1. Regulatory Perimeter May Become More Objective

A structured taxonomy could create greater predictability regarding which digital-asset activities require registration or fall within existing regulatory frameworks. This would represent a shift away from the historical reliance on case-by-case enforcement.

2. Substance Over Form Will Remain Central

The SEC is likely to continue evaluating tokens based on their actual mechanics and market behavior. Marketing statements, rights embedded in code, managerial involvement, and network architecture will remain central to determining whether an asset is a security.

3. Asset Classification May Evolve

The Chairman expressly acknowledged the possibility that a token initially offered as part of a securities transaction could, under appropriate conditions, cease to be treated as a security once the operative network is sufficiently functional and decentralized.

4. Enforcement Will Continue in Parallel

Nothing in the Chairman's remarks suggests a reduction in enforcement activity pending rulemaking. Activities involving tokenized securities, unregistered platforms, misleading promotional practices, or inadequate custody arrangements will remain a regulatory focus.

III. Conclusions

Chairman Atkins’s remarks under Project Crypto offer an early and non-binding indication of how the SEC may seek to organize the digital asset market through a functional taxonomy. Although the ultimate regulatory framework will depend on forthcoming rulemaking and the composition of the Commission, the concepts outlined in the November 12 speech provide meaningful insight into the SEC’s current analytical direction.

Market participants should use this opportunity to evaluate their digital asset activities, anticipate potential regulatory classifications, and prepare for the possibility of formal SEC proposals that may incorporate elements of this taxonomy.

 

1 It is worth noting that in September 2025, the SEC’s Division of Corporation Finance issued a no-action letter to DoubleZero Technologies, Inc., stating that it would not recommend enforcement action if the company sold its 2Z token without registration under the Securities Act. The staff’s position was based on the token’s strictly functional role within the DoubleZero network, used to reward user-provided infrastructure services, and on the company’s representations that the token would not be marketed or positioned as an investment.

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