From Chaos to Clarity: SEC Chair Redefines the New Era of Cryptocurrency Regulation

Breaking a Decade of Uncertainty

Cryptocurrency asset regulation has long been troubled by one question: what exactly is a security? This seemingly simple question actually reflects a deeper issue—the policymakers’ insufficient understanding of the nature of digital assets.

The Chair of the U.S. Securities and Exchange Commission (SEC) pointed out in his latest speech that over the past ten years, this uncertainty has caused significant harm. Developers, exchanges, custodians, and investors have been navigating in complete darkness, facing regulatory obstacles rather than guidance. Worse still, this ambiguous stance has led many entrepreneurs to move overseas, causing the U.S. to lose its leadership in digital financial innovation.

The key issue is: the term “cryptocurrency assets” is not formally defined in federal securities law. It merely describes the method of recording and transferring assets, without touching on the legal rights associated with specific tools or the economic substance of transactions—precisely the core elements in determining whether an asset is a security.

A Pragmatic New Framework: Project Crypto

To break this deadlock, the SEC has launched Project Crypto—a regulatory framework aimed at bringing clarity and certainty to the U.S. financial markets. This framework is based on two fundamental principles:

First, substance over form. Regardless of how assets exist—paper certificates, DTCC account records, or tokens on a blockchain—their essence remains unchanged. A share of stock is always a share of stock; a bond, whether tracked via smart contracts or not, remains a bond. Economic substance is the standard for judgment, not the labels used by market participants.

Second, clear applicable boundaries. The SEC needs to clarify which assets fall under securities law and which do not. Such transparency is equally vital for innovators, intermediaries, and investors.

A New Classification System for Tokens

Based on these principles, the SEC Chair outlined their understanding of different types of crypto assets:

Network Tokens and Digital Goods

Network tokens and digital goods are not considered securities. The value of these assets is directly related to the “full functionality” and “decentralization” of the cryptosystems they operate within, rather than profit expectations derived from others’ management efforts. In other words, when the value of tokens comes from the utility and functionality of the network itself, they should not be classified as securities.

Collectibles

Digital collectibles are not considered securities. These assets are designed for collection and use, and can represent or grant holders expression or referencing rights to digital art, music, videos, trading cards, game items, memes, characters, current events, or online trends. Buyers do not expect to profit from others’ daily management efforts.

Digital Tools

Digital tools are not considered securities. This includes assets with practical functions such as memberships, tickets, certificates, proof of ownership, or identity badges. Buyers similarly do not expect to profit from the issuer’s management efforts.

Tokenized Securities

Tokenized securities are always securities. These assets represent ownership of traditional financial instruments held within a crypto network, and their security nature does not change due to form.

Howey Test: Power and Limitations

The Howey test (originating from a historic case involving citrus grove investment plans) has long been the standard for determining investment contracts. It asks: Is there an investment of money, in a common enterprise, with a reasonable expectation of profits, relying on the efforts of others?

But the SEC Chair introduced a long-overlooked key insight: Investment contracts can be terminated.

An initial issuance of a token project may indeed involve an investment contract, but these commitments are not permanent. As the network matures, code is deployed, and control is decentralized, the role of the issuer diminishes or even disappears. At some point, buyers no longer rely on the issuer’s key management efforts, and most token trades are no longer based on a reasonable expectation that “a team is still leading.”

This idea is illustrated vividly with a metaphor: Florida’s Howey estate was once part of an investment scheme, but today it has been transformed into a golf course and retirement community. The original investment instrument is no longer a security, even though the land itself has not changed. Tokens should follow the same logic.

Practical Regulatory Commitments

The SEC Chair explicitly stated that in the coming months, a series of actions will be taken to implement this framework:

Simplify fundraising processes: The SEC is preparing proposals to allow tokens related to investment contracts to be traded on platforms outside SEC regulation, including those registered with the Commodity Futures Trading Commission (CFTC) or governed by state regulations. Fundraising activities will still be under SEC oversight, but it should not be mandatory for the underlying assets to be traded only within specific regulatory environments.

Fraud protections remain effective: This framework does not mean fraud becomes acceptable. False statements and omissions related to the sale of investment contracts will still be subject to anti-fraud provisions, even if the underlying assets are not securities. Within the scope of interstate trading of these assets as commodities, the CFTC also retains anti-fraud and anti-manipulation authority.

Ongoing multi-agency coordination: The SEC will work closely with the CFTC, banking regulators, and relevant congressional departments to ensure that non-securities crypto assets are properly regulated.

Boundaries of Authority and the Significance of the Rule of Law

The SEC Chair emphasized that this framework clarifies the limits of the Commission’s authority. Securities law was enacted to address a specific problem: when people entrust funds based on the honesty and capability of others. These laws are not meant to serve as a “Constitution” regulating all new forms of value.

More importantly, this new direction reflects a humble recognition: in a free society, the rules of economic life must be known, reasonable, and clearly defined. When we extend securities law beyond its proper scope, or assume all innovation is guilty, we deviate from this fundamental principle.

Conversely, when we acknowledge that investment contracts can be terminated and networks can operate independently, we are practicing this principle. This is the true significance of Project Crypto.

From Past to Future Choices

This new regulatory stance will not determine the fate of markets or the success of any particular project—the market itself will decide. But it will help ensure that the U.S. remains a place where people can experiment, learn, fail, and succeed under fair and clear rules.

In this speech, the SEC Chair sent a clear message to entrepreneurs, investors, and developers: fear of the future should not trap us in the past. Behind every debate about tokens are real people—entrepreneurs building solutions, workers investing in the future, and Americans seeking to share in national prosperity. The SEC’s mission is to serve these three groups.

This new era marks a shift from a decade of vague regulation to a more institutionalized clarity—potentially a turning point for the U.S. to maintain its position as a global center of financial innovation.