In a long-awaited move that could redefine how digital assets are treated under U.S. law, the Securities and Exchange Commission (SEC) has introduced a new framework for determining whether crypto tokens are securities. This guidance introduces a modernized, three-pronged approach that promises to bring greater clarity and predictability to an industry that has long operated in regulatory limbo.
For years, crypto projects, investors, and exchanges have struggled to interpret whether tokens should fall under securities law. This latest development not only reaffirms the relevance of the Howey Test but also adapts it to better fit the realities of decentralized technologies. The new classification system could become a foundational tool in the regulatory future of blockchain assets in the United States.
Why This New Guidance Matters
Until now, U.S. regulators have relied on the 1946 Supreme Court ruling known as the Howey Test to determine whether an asset qualifies as a security. While still foundational, applying this four-part test to blockchain-based assets has often led to confusion. The industry has also criticized the SEC’s past reliance on case-by-case enforcement, which left many innovators uncertain about how to operate legally.
This new framework marks a turning point. Instead of vague threats or scattered lawsuits, token issuers and market participants now have a clearer rubric to follow when assessing regulatory risk.
Revisiting the Howey Test
The SEC’s updated guidance reaffirms the continued use of the Howey Test’s four criteria:
- Investment of money
- In a common enterprise
- With an expectation of profits
- Derived from the efforts of others
But recognizing the complexity of crypto ecosystems, the SEC has layered a more crypto-specific framework on top of it—one that captures the unique attributes of blockchain tokens.
The SEC’s New Three-Pronged Classification Framework
To bring clarity to token classification, the SEC introduced a new three-part test:
1. Initial Sale Context
This prong focuses on how the token was marketed or sold at the time of its launch. Key indicators of a security include:
- Promises or suggestions of price appreciation
- Language highlighting investment potential
- Sales conducted through initial coin offerings (ICOs)
- Promotional material emphasizing returns
If a token was introduced to the market with investor-focused language or structured fundraising efforts, it’s far more likely to be classified as a security, even if its intended use is later tied to a decentralized platform.
2. Ongoing Use
The second prong assesses whether the token has genuine, non-speculative utility on a decentralized network. A few examples:
- Tokens used for paying gas fees (like ETH)
- Tokens that grant access to digital goods or services
- Governance tokens with decentralized control
- Assets that function as tools, not investments
Ethereum (ETH), particularly after its transition to proof-of-stake, has been cited as an example of a decentralized token with functional utility, one unlikely to be classified as a security under this framework.
3. Issuer Influence
The final prong evaluates the level of ongoing control or influence retained by the issuing team or foundation. Factors that may indicate excessive influence include:
- Centralized control over token supply
- Protocol upgrades directed solely by a core team
- Pre-mining or token vesting designed to benefit insiders
- Revenue-sharing mechanisms or dividend-like structures
Tokens heavily controlled by a founding team may still be treated as securities, even if they appear to have utility, if the value relies on centralized decision-making.
⚡ INSIGHT: The SEC released 2025 guidance clarifying which crypto tokens qualify as securities, introducing new three-pronged framework beyond traditional Howey test. pic.twitter.com/7osDSRW0yY
— Cointelegraph (@Cointelegraph) June 3, 2025
A Holistic Approach
The SEC emphasized that no single factor is dispositive. Instead, the agency will evaluate the full lifecycle and ecosystem of a token to determine classification. For instance, a token that was initially marketed as an investment but has since become decentralized and utility-driven may no longer be considered a security. Conversely, even a utility token could fall under SEC scrutiny if central promoters play a dominant role in its success.
This holistic view gives projects the opportunity to evolve, but also demands transparency, decentralization, and strategic planning.
What Types of Tokens Are Likely (or Unlikely) to Be Securities?
Likely to Be Securities:
- ICO tokens promising high returns
- Governance tokens that share profits or dividends
- Tokens tied to a central team’s success
- Pre-mined assets marketed for value growth
Unlikely to Be Securities:
- Payment-focused stablecoins with transparent reserves
- Utility tokens for specific platform functions
- Layer-1 assets like ETH, SOL, and AVAX used for network activity
- In-game or non-transferable tokens with no financial utility
Still in the Gray Area:
- Governance tokens from DAOs with partial decentralization
- Meme coins that gain speculative popularity
- Hybrid projects that evolve from centralized to decentralized models
What This Means for the Crypto Industry
For Token Issuers
The new framework compels token creators to re-examine their offerings. Teams will need to document their decentralization efforts, avoid profit-focused marketing, and ensure that token holders are users, not investors. Some may have to register with the SEC or restructure their token models entirely.
For Exchanges
Crypto exchanges will face increased legal pressure to conduct rigorous token reviews. Those listing assets that qualify as securities could be required to register as securities brokers or alternative trading systems (ATSs)—a major compliance burden. Delistings of questionable tokens are likely to increase.
For Investors
While some tokens may disappear from major exchanges, the market will likely become safer. Fewer scams and more compliant projects may increase long-term investor confidence. However, short-term speculation may take a hit.
Regulatory Trends and Industry Reactions
This framework signals a broader regulatory shift in Washington. The SEC has committed to rulemaking via public input, rather than aggressive enforcement alone. It is also working in closer alignment with congressional efforts like the CLARITY Act, which aims to divide oversight between the SEC and CFTC, particularly on issues like stablecoins.
While many in the crypto space welcomed the clarity, others expressed concern about potential overreach and subjective interpretations of “sufficient decentralization.” The debate is ongoing—and healthy—for a fast-moving sector.
Final Thoughts
The SEC’s three-pronged framework is the most explicit attempt yet to categorize crypto tokens in a coherent and forward-looking way. By addressing both the structure and promotion of tokens, and factoring in decentralization and utility, the SEC is laying the groundwork for more predictable crypto regulation in the U.S.
Still, as with any new policy, its real impact will depend on its implementation. If applied with flexibility and fairness, it could be a turning point that balances innovation with investor protection. If enforced rigidly, it risks stifling the very innovation it aims to regulate.
For now, crypto developers, investors, and platforms must adapt quickly. The rules are clearer than ever, but the responsibility to comply has never been greater.
