Key takeaways

• Atkins’ token taxonomy creates four buckets, commodities, collectibles, tools, securities rooted in Howey, enabling tokens to exit SEC rules via decentralization.
• Tokens “graduate” from SEC oversight to lighter CFTC or state rules once decentralized, via open code or dispersed control. This slashes compliance burdens for evolving projects, clears limbo for assets like XRP, and paves the way for U.S.-based crypto ETFs.
• Framework supports Senate bill revisions, promising coordinated oversight that fights fraud without stifling growth.

On Wednesday, Securities and Exchange Commission Chair Paul Atkins, unveiled a blueprint for classifying digital assets under a new “token taxonomy.” The commission is aiming to resolve years of regulatory uncertainty in the cryptocurrency industry while signaling a shift toward more predictable oversight.

The commissioner made this known at the Federal Reserve Bank of Philadelphia’s Fintech Conference, describing the taxonomy as structured analysis grounded in the Howey Test. Atkins said the new four-category token taxonomy will let assets shed their security status as they decentralize. 

Part of “Project Crypto”, the framework sorts token by control and function, appealing to issuers with the promise of a graduation track. Atkins labelled the previous enforcement as chaos and said it was a contributing factor to chasing innovation out of the country.

The new four-tier taxonomy defined

The four categories and their functions, as outlined by the commissioner, are:

1. Tokenized securities: Blockchain versions of stocks or assets dependent on issuer efforts. They require full SEC registration and disclosure.
2. Digital collectibles: NFTs or unique items lacking investment intent. They evade securities classification, drawing light-touch regulation.
3. Digital commodities: Fully decentralized assets like Bitcoin, with no central control. CFTC takes primary jurisdiction; SEC intervenes only on fraud.
4. Digital tools: Utility tokens granting network access or functions, sans profit promises. They fall outside securities law entirely.

The proposal, which the SEC could vote on in the coming months, would assess tokens’ evolving roles in blockchain networks, acknowledging that what starts as a security may not remain one. 

“Cryptocurrencies can be a part of an investment contract, but it doesn’t mean they will stay that way forever,” Atkins said. He pointed to the maturation of decentralized networks, stating that the issuer’s role will diminish or disappear at some point. “Purchasers will no longer rely on the issuer’s management and tokens will trade without any expectation that a particular team is still at the helm.”

The Howey Test is a landmark 1946 Supreme Court ruling that defines an investment contract as a security when it involves an expectation of profits from others’ efforts. In application to the new taxonomy, Atkins said the commission is working on exemptions to smooth these transitions for stress free multi-assets custody and trading under a single regime. 

Certainty at last?

The initiative marks a departure from the aggressive enforcement tactics of Atkins’ predecessor, Gary Gensler, whose tenure under the Biden administration saw dozens of lawsuits against crypto platforms, often labeling tokens as unregistered securities. Critics dubbed it “regulation by enforcement,” arguing it stifled innovation. Since President Trump’s return to office last year, the SEC, now led by Atkins, has taken a different direction in shelving several probes, hosting industry roundtables spearheaded by pro-crypto Commissioner Hester Peirce, and launching “Project Crypto” to overhaul digital asset rules.