In the United States, start with the specific transaction, not the token’s name: apply the Supreme Court’s Howey investment-contract test to the asset’s rights, the issuer’s promises, the system’s functionality and the purchaser’s reasonable expectations. The SEC’s March 2026 interpretation provides a current agency framework, but it is not a universal label-based test or a binding judicial ruling. This guide covers U.S. federal law as of October 8, 2026; it is general information, not legal advice.
What exactly are you trying to classify?
Separate the crypto asset from the transaction involving it. A token may not itself be a security yet still be offered or sold as part of an investment contract. Conversely, a financial instrument does not stop being a security because it is issued or represented on a blockchain. The SEC’s March 2026 interpretive release states: “A security is a security regardless of whether it is issued, or otherwise represented, offchain or onchain.”
Before drawing a conclusion, identify the precise asset and the conduct at issue. A direct token sale, a later resale, a staking arrangement, a wrapped or receipt token, and a derivative or exchange product can raise different questions. Record the jurisdiction and date, the purchaser-facing communications, the rights conveyed, and the state of the associated system at that time.
How does the Howey test screen an arrangement?
The central U.S. federal screen is whether the arrangement involves an investment of money in a common enterprise, with a reasonable expectation of profits derived from the essential managerial efforts of others. The elements are conjunctive under the SEC’s March 17, 2026 interpretation: if any element is absent, there is no investment contract under Howey. The token’s label or technical format does not answer the test.
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1. Identify the investment and common enterprise
Examine what purchasers contributed and whether their fortunes are tied to a shared venture or to one another in the relevant arrangement. Do not assume that paying with cryptocurrency rather than cash changes the analysis. The question is the economic arrangement, not the payment label.
2. Identify the expected profit
Look for a reasonable expectation of financial gain, including expectations shaped by the sale materials, public statements, or promised future work. A purchaser’s hope that a token’s market price will rise is not, by itself, a complete Howey analysis; the source of the expected return and the other elements matter.
3. Trace profit expectations to others’ essential efforts
Ask whether purchasers reasonably expect profits from significant work by an issuer, promoter, or another party—work that can affect the enterprise’s success. Examples to investigate include developing or launching the network, operating a business, meeting milestones, or supplying resources that the issuer presents as necessary to create value. Routine or ministerial tasks alone are not the kind of essential managerial effort described in the SEC interpretation.
What evidence should you examine?
Issuer statements and offering context
Review the actual communications aimed at purchasers, including sale materials and statements about development, operations, launch plans, milestones, and future work. Note who made each representation, when and to whom it was made, and whether it was connected to the offer or sale. A specific promise to perform significant work may matter more than a general statement of aspiration. The SEC’s FAQ, updated September 28, 2026, says that current utility claims or vague aspirational statements, standing alone, may not be enough to create an investment contract; the facts and context still control.
Rights carried by the asset
Read the terms governing the asset rather than relying on its marketing name. Check for rights to income, profits, redemption, governance, custody, or an underlying security. A claim on cash flows or a financial instrument represented by a token calls for different analysis from a token whose principal function is technical use of a network.
Functionality, utility and control
Determine whether the native asset can actually be used for the system’s programmed purpose, and what functions it serves. Relevant uses may include paying transaction fees, participating in validation or consensus, supporting network operation or security, and governance. Document what remains to be built, who controls development or operation, and whether a person or group can still perform work that materially affects the system’s success.
Functionality and utility inform the classification; they are not an automatic safe harbor for every sale. A usable token may still be offered in an arrangement that satisfies Howey, depending on the promises and expectations surrounding that transaction.
How do the SEC’s crypto-asset categories fit?
The SEC’s March 2026 interpretation groups crypto assets into five broad categories. The categories help organize the analysis, but they do not replace review of a particular asset’s rights, functionality, representations and transaction.
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Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Clear out junk files and repair common Windows errorsFree Scan →| SEC category | What to examine | How it relates to the security question |
|---|---|---|
| Digital commodities | Whether the asset is necessary to participate in or use aspects of a functional crypto system, and whether its value is tied to programmatic operation and supply and demand. | As described in the interpretation, a digital commodity is not itself a security, but it may be sold subject to an investment contract. |
| Digital collectibles | The asset’s collectible character and the rights or claims, if any, attached to it. | The category description does not prevent a particular offer or sale from being part of an investment contract. |
| Digital tools | The tool’s function in a system and the actual rights it gives its holder. | The category description does not determine whether the surrounding transaction satisfies Howey. |
| Stablecoins | How the token works, what redemption or other rights it provides, and whether it falls within the statutory category for payment stablecoins issued by a permitted payment stablecoin issuer. | Stablecoins do not all receive the same treatment; features and statutory status matter. |
| Digital securities | Whether the token represents a financial instrument and what rights that instrument carries. | A security remains a security when represented in crypto form. |
The SEC’s description of a digital commodity uses “commodity” in an economic and commercial sense: a fungible asset with utility whose value is determined by supply and demand. It also says that a non-security crypto asset other than a payment stablecoin issued by a permitted payment stablecoin issuer could meet the Commodity Exchange Act’s commodity definition. That does not mean every asset classified as not a security is subject to CFTC exclusive jurisdiction, or that every transaction involving it has the same regulatory treatment.
Why do the transaction and date matter?
Classification can depend on what was promised and what was true at the time of a particular offer or sale. The SEC’s 2026 interpretation describes circumstances in which a non-security asset can later separate from an investment contract, including when promised efforts have been fulfilled or abandoned, or cannot be fulfilled. If another party takes over the issuer’s promised efforts, the SEC’s FAQ says separation does not occur under the interpretation’s described circumstances.
A later change does not erase potential liability for an earlier unregistered offer or material misstatement. Keep the analysis tied to the specific transaction and date rather than treating a later network state as a conclusion about every prior sale.
A practical screening workflow
- Define the question. Name the exact asset, transaction type, jurisdiction and relevant date. Separate the asset itself from an offer, resale, staking arrangement, wrapped token, derivative, or exchange activity.
- Collect the purchaser-facing evidence. Save the relevant terms, sale materials and issuer or promoter statements. Record who made each statement, its date, audience and connection to the transaction.
- Map the holder’s rights and actual use. Identify financial claims, redemption and governance rights, any underlying instrument, and the asset’s working utility in the system.
- Assess functionality and control at that time. Note what the system could do, what work remained, who could perform it, and whether that work could materially affect success.
- Apply each Howey element to the arrangement. Consider the investment, common enterprise, reasonable expectation of profit and reliance on others’ essential managerial efforts. Do not treat a favorable answer on utility or decentralization as a substitute for the full test.
- Compare the result with the SEC categories. Use the category descriptions as an aid, not a shortcut—especially for stablecoins, collectibles, tools and financial instruments represented by tokens.
- Write a qualified, dated conclusion. State whether the facts are more consistent with a security-related investment contract or a non-security asset, identify unresolved facts, and note the sources reviewed. For a named offering, staking service or exchange product, seek advice from a lawyer experienced in securities and commodities law.
How to state the result without overclaiming
A useful screening conclusion is specific: “For this offer, in this jurisdiction and as of this date, the known facts are more consistent with [description], because [key facts]. The unresolved issues are [items].” Avoid declaring that a token is categorically a security or commodity based only on its name, a promotional label, or a single feature. There is no SEC approval process that turns a private classification into a universal status.
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The SEC’s March 17, 2026 interpretation is an agency interpretation, not a statute or a judicial holding that binds every court. The Commission says application depends on facts and circumstances, and its interpretation does not bind courts or every other regulator. The CFTC said it would administer the Commodity Exchange Act consistently with that interpretation. The consequences for a particular instrument, market or activity still depend on the applicable law and facts. Other countries use different definitions and tests.
For primary-source context, consult the SEC’s Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets (March 17, 2026), its Frequently Asked Questions (updated September 28, 2026), Crypto Assets and the Federal Securities Laws (updated May 15, 2026), and Transactions Involving Crypto Assets (updated April 29, 2026). The SEC identifies Bitcoin, Ether and XRP as examples of digital commodities based on their characteristics, terms and functions as of the release date; that is not a blanket determination for every transaction involving those assets. The SEC’s older 2019 staff framework is withdrawn and superseded by the 2026 interpretation.
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