Original Author: Paul S. Atkins, Chairman of the U.S. Securities and Exchange Commission

Original Translation: Luffy, Foresight News

Ladies and gentlemen, good morning! Thank you for your warm introduction and for inviting me here today as we continue to explore how the United States can lead the next era of financial innovation.

Recently, when discussing America's leadership in the digital financial revolution, I described "Project Crypto" as a regulatory framework established to match the vitality of American innovators (Note: The SEC launched the Project Crypto initiative on August 1 of this year, aimed at updating securities rules and regulations to enable on-chain capabilities in U.S. financial markets). Today, I would like to outline the next steps in this process. The core of this step is to uphold the principles of basic fairness and common sense in applying federal securities laws to crypto assets and related transactions.

In the coming months, I expect the SEC to consider establishing a token classification system based on the long-standing Howey investment contract securities analysis, while acknowledging the applicable boundaries of our laws and regulations.

What I am about to elaborate on is largely based on the groundbreaking work conducted by the cryptocurrency task force led by Commissioner Hester Peirce. Commissioner Peirce has constructed a framework aimed at coherently and transparently regulating crypto assets under securities law based on economic substance rather than slogans or panic. I want to reiterate that I share her vision. I value her leadership, hard work, and her unwavering commitment to advancing these issues over the years. I have worked alongside her for a long time and am very pleased that she has agreed to take on this task.

My remarks will revolve around three themes: First, the importance of a clear token classification system; second, the applicable logic of the Howey test, acknowledging the fact that investment contracts can terminate; third, what this means in practice for innovators, intermediaries, and investors.

Before I begin, I would also like to reiterate: While SEC staff are diligently drafting rule amendments, I fully support Congress's efforts to incorporate a comprehensive cryptocurrency market structure framework into statutory law. My vision aligns with the bills currently under consideration in Congress, aimed at supplementing rather than replacing Congress's critical work. Commissioner Peirce and I have prioritized supporting congressional action and will continue to do so.

It has been a pleasure working with Acting Chair Pham, and I wish Mike Selig, the CFTC chair nominee appointed by President Trump, a smooth and swift confirmation process. My experience working with Mike over the past few months has convinced me that we are both committed to assisting Congress in swiftly advancing bipartisan market structure legislation for the President's signature. Nothing is more effective in preventing regulatory abuse than sound statutory language crafted by Congress.

To reassure my compliance team, I will make a standard disclaimer: My remarks represent my personal views as Chairman and do not necessarily reflect the views of other commissioners or the SEC as a whole.

A Decade Full of Uncertainty

If you are tired of hearing the question "Are crypto assets securities?", I completely understand. The confusion surrounding this question arises because "crypto assets" is not a term defined in federal securities law; it is a technical description that merely indicates the method of record-keeping and value transfer, while almost entirely omitting the legal rights attached to specific instruments or the economic substance of specific transactions, which are key to determining whether an asset is a security.

I believe that most cryptocurrencies traded today are not securities in themselves. Of course, a specific token may be sold as part of an investment contract in a securities offering, but this is not a radical view; it is a direct application of securities law. The statutory definition of securities lists common instruments such as stocks, notes, and bonds, and adds a broader category: "investment contracts." The latter describes the relationship between parties rather than a permanent label attached to a specific item. Unfortunately, the statute does not define it either.

Investment contracts can be fulfilled or terminated. Just because the underlying asset of an investment contract continues to trade on the blockchain does not mean the investment contract is forever valid.

However, over the past few years, too many have argued that if a token was once the subject of an investment contract, it is forever a security. This flawed view even further presumes that every subsequent transaction of that token (regardless of where or when) is a securities transaction. I find it difficult to reconcile this view with statutory language, Supreme Court precedent, or common sense.

Meanwhile, developers, exchanges, custodians, and investors have been groping in the fog, lacking guidance from the SEC and facing obstacles instead. The tokens they see serve as payment tools, governance tools, collectibles, or access keys, while some are hybrid designs that are hard to categorize into any existing category. Yet, for a long time, the regulatory stance has treated all these tokens as if they were securities.

This view is neither sustainable nor practical. It incurs enormous costs with minimal benefits; it is unfair to market participants and investors, inconsistent with the law, and has triggered a wave of entrepreneurs moving offshore. The reality is: If the U.S. insists on forcing every on-chain innovation to navigate the minefield of securities law, these innovations will migrate to jurisdictions more willing to distinguish between different types of assets and more willing to establish rules in advance.

Instead, we will do what regulators should do: draw clear lines and explain them in plain language.

Core Principles of Project Crypto

Before outlining my views on the application of securities law to cryptocurrencies and transactions, I want to state two fundamental principles that guide my thinking.

First, whether a stock is represented by a paper certificate, a trust and settlement company (DTCC) account, or in the form of a token on a public blockchain, it is fundamentally still a stock; a bond does not cease to be a bond just because its payment flows are tracked through smart contracts. Regardless of the form it takes, a security is always a security. This is easy to understand.

Second, economic substance prevails over labels. If an asset essentially represents a claim to the profits of a business and is sold with a promise that relies on the core management efforts of others, then calling it a "token" or "non-fungible token (NFT)" does not exempt it from current securities laws. Conversely, just because a token was once part of a financing transaction does not mean it magically transforms into stock of an operating company.

These principles are not novel. The Supreme Court has repeatedly emphasized that when determining the applicability of securities law, the substance of the transaction, rather than its form, should be the focus. The new change lies in the scale and speed of the evolution of asset types in these new markets. This pace requires us to respond flexibly to the urgent demand for guidance from market participants.

A Coherent Token Classification System

Based on the above context, I would like to outline my current views on various types of crypto assets (please note that this list is not exhaustive). This framework has been developed based on months of roundtable discussions, over a hundred meetings with market participants, and hundreds of public written comments.

• First, regarding the bills currently under consideration in Congress, I believe that "digital commodities" or "network tokens" are not securities. The value of these crypto assets is fundamentally related to the programmatic operation of a "well-functioning" and "decentralized" crypto system, and arises from that, rather than from the expected profits derived from the key management efforts of others.
• Second, I believe that "digital collectibles" are not securities. These crypto assets are intended for collection and use, and may represent or confer rights to digital expressions or references of art, music, videos, trading cards, in-game items, or internet memes, characters, current events, and trends. Buyers of digital collectibles do not expect to profit from the daily management efforts of others.
• Third, I believe that "digital tools" are not securities. These crypto assets have practical functions, such as memberships, tickets, vouchers, proof of ownership, or identity badges. Buyers of digital tools do not expect to profit from the daily management efforts of others.
• Fourth, "tokenized securities" are, and will always be, securities. These crypto assets represent ownership of financial instruments listed in the definition of "securities," which are maintained on a crypto network.

The Howey Test, Commitments, and Termination

While most crypto assets themselves are not securities, they may be part of or bound by investment contracts. Such crypto assets often come with specific statements or commitments that the issuer must fulfill management responsibilities to meet the requirements of the Howey test.

The core of the Howey test is: investing money in a common enterprise with a reasonable expectation of profits derived from the efforts of others. The buyer's expectation of profit depends on whether the issuer has made statements or commitments to undertake core management efforts.

In my view, these statements or commitments must clearly and unambiguously indicate the core management efforts that the issuer will undertake.

The next question is: how do non-security crypto assets separate from investment contracts? The answer is simple yet profound: the issuer either fulfilled the statements or commitments, or failed to do so, or the contract terminated for other reasons.

To help everyone understand better, I want to talk about a place in the rolling hills of Florida. I have been very familiar with it since childhood; it was once the site of the William J. Howey citrus empire. In the early 20th century, Howey purchased over 60,000 acres of undeveloped land, planting orange and grapefruit groves next to his mansion. His company sold orchard parcels to individual investors and was responsible for growing, harvesting, and selling the fruit for them.

The Supreme Court reviewed Howey's arrangement and established the test standard for defining investment contracts, which has influenced generations. But today, Howey's land has undergone a dramatic transformation. The mansion he built in Lake County, Florida, in 1925 still stands a century later, hosting weddings and other events, while the citrus groves that once surrounded the mansion have mostly disappeared, replaced by resorts, championship golf courses, and residential communities, making it an ideal retirement community. It is hard to imagine that anyone standing on these fairways and cul-de-sacs today would think they constitute securities. However, for years, we have seen the same test rigidly applied to digital assets that have undergone similarly profound transformations, yet still carry the label from when they were issued, as if nothing has changed.

The land surrounding the Howey mansion was never a security; it became the subject of an investment contract through specific arrangements, and when that arrangement terminated, it was no longer bound by the investment contract. Of course, even though the business on the land underwent a complete change, the land itself remained unchanged.

Commissioner Peirce's observation is very accurate: a project's token issuance may initially involve an investment contract, but those commitments are not forever valid. Networks mature, code is implemented, control is decentralized, and the issuer's role diminishes or even disappears. At some point, buyers no longer rely on the issuer's core management efforts, and most token transactions are no longer based on the reasonable expectation that "a certain team is still in control." In short, a token does not remain a security forever just because it was once part of an investment contract transaction, just as a golf course does not become a security simply because it was once part of a citrus grove investment plan.

When an investment contract can be deemed fulfilled or terminated according to its terms, the token may continue to trade, but those transactions will not become securities transactions merely because of the token's origin story.

As many of you know, I strongly support the concept of super applications in the financial sector, which allow for the custody and trading of multiple asset classes under a single regulatory license. I have asked SEC staff to prepare relevant recommendations for SEC consideration: allowing tokens associated with investment contracts to trade on platforms not regulated by the SEC, including intermediaries registered with the Commodity Futures Trading Commission (CFTC) or subject to state regulatory frameworks. While financing activities should still be regulated by the SEC, we should not hinder innovation and investor choice by requiring that the underlying assets can only be traded in a specific regulatory environment.

Importantly, this does not mean that fraudulent behavior suddenly becomes acceptable, or that the SEC's focus has diminished. Anti-fraud provisions still apply to false statements and omissions related to the sale of investment contracts, even if the underlying asset itself is not a security. Of course, regarding these tokens as commodities in state commerce, the CFTC also has anti-fraud and anti-manipulation authority to take action against misconduct in the trading of these assets.

This means that our rules and enforcement will align with the economic substance of "investment contracts may terminate, and networks can operate independently."

Cryptocurrency Regulatory Actions

In the coming months, as envisioned in the bills currently under consideration in Congress, I hope the SEC will also consider a series of exemption provisions to establish a tailored issuance system for crypto assets that are part of or bound by investment contracts.

I have asked staff to prepare relevant recommendations for SEC consideration, aimed at facilitating financing, fostering innovation, while ensuring investor protection.

By streamlining this process, innovators in the blockchain space can focus their energy on development and user engagement rather than navigating a maze of regulatory uncertainty. Additionally, this approach will cultivate a more inclusive and vibrant ecosystem, allowing smaller projects with limited resources to experiment freely and thrive.

Of course, we will continue to work closely with the CFTC, banking regulators, and corresponding congressional committees to ensure that non-security crypto assets have an appropriate regulatory framework. Our goal is not to expand the SEC's jurisdiction but to allow financing activities to flourish while ensuring investor protection.

We will continue to listen to all voices. The cryptocurrency task force and relevant departments have held multiple roundtable discussions and reviewed a large number of written comments, but we need more feedback. We need input from investors, developers concerned about code delivery, and traditional financial institutions eager to participate in on-chain markets but reluctant to violate rules established for the paper era.

Finally, as I mentioned earlier, we will continue to support Congress's efforts to incorporate a comprehensive market structure framework into statutory law. While the SEC can provide reasonable views under current law, the future SEC may still change direction. This is why tailored legislation is so important, and why I am pleased to support President Trump's goal of introducing a cryptocurrency market structure bill by the end of the year.

Integrity, Understandability, and the Rule of Law

Now, I want to clarify what this framework does not include. It is not a commitment by the SEC to relax enforcement; fraud is fraud. While the SEC protects investors from securities fraud, there are many other federal regulatory agencies capable of overseeing and preventing illegal activities. That said, if you build a network to raise funds through promises and then abscond with the money, we will find you and take the most severe action allowed by law.

This framework is a commitment to integrity and transparency. For entrepreneurs wishing to start businesses in the U.S. and willing to adhere to clear rules, we should not respond with mere shrugs, threats, or subpoenas; for investors trying to distinguish between purchasing tokenized stocks and buying game collectibles, we should not only provide a complex web of enforcement actions.

Most importantly, this framework reflects a humble recognition of the boundaries of the SEC's own authority. Congress enacted securities laws to address specific issues—namely, the situation where people entrust their funds to others based on their integrity and ability. These laws were not intended to serve as a universal charter for regulating all new forms of value.

Contracts, Freedom, and Responsibility

Let me conclude with a historical reflection from Commissioner Peirce's speech in May of this year. She evoked the spirit of an American patriot who risked great personal peril, even to the point of death, to defend the principle that free people should not be subject to arbitrary decrees.

Fortunately, our work does not require such sacrifices, but the principles are the same. In a free society, the rules governing economic life should be knowable, reasonable, and appropriately constrained. When we extend securities law beyond its rightful scope, when we presume every innovation is guilty, we deviate from this core principle. When we acknowledge the boundaries of our own authority, when we recognize that investment contracts may terminate and networks can operate independently based on their own value, we are practicing this principle.

The SEC's reasonable regulatory approach to cryptocurrencies will not determine the fate of the market or any specific project; that will be determined by the market. But it will help ensure that the U.S. remains a place where people can experiment, learn, fail, and succeed under firm and fair rules.

That is the significance of Project Crypto and the goal the SEC should pursue. As Chairman, I commit to you today: we will not allow fear of the future to trap us in the past; we will not forget that behind every debate related to tokens are real people—entrepreneurs striving to build solutions, workers investing in the future, and Americans working to share in the prosperity of this country. The role of the SEC is to serve these three groups.

Thank you all, and I look forward to continuing the dialogue with you in the coming months.

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