SEC, CFTC Unveil Token Taxonomy, Classifying BTC, ETH, XRP, DOGE as Non-Securities

The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have jointly unveiled a token taxonomy that classifies crypto assets into five categories. This latest guidance further confirms that most crypto assets are not securities, although the SEC explained how they could flip into securities.

SEC Releases Token Taxonomy Classifying Digital Assets

The SEC released a 68-page guidance in collaboration with the CFTC, clarifying how it plans to apply federal securities laws to crypto assets. The agency notably grouped crypto assets into five categories, namely, digital commodities, digital collectibles, digital tools, stablecoins, and digital securities.

The release of this token taxonomy comes just days after the launch of the SEC-CFTC harmonization initiative to coordinate efforts to strengthen the U.S. position as the crypto capital. As part of this latest guidance, the SEC noted that digital commodities, digital collectibles, and digital tools are not themselves securities.

However, they can become securities if an individual or group offers and sells them subject to an investment contract. The SEC defined a digital commodity as a crypto asset that is “intrinsically linked to and derives its value from the programmatic operation of a crypto system that is functional, as well as supply and demand dynamics.”

The commission listed the top coins, such as Bitcoin, Ethereum, XRP, and Dogecoin, as examples of digital commodities under this token taxonomy. “A digital commodity is necessary to participate in or use certain aspects of an associated functional crypto system,” the SEC said.

Meanwhile, digital collectibles are crypto assets that may represent or convey rights to artwork, music, videos, trading cards, or in-game items. The commission also noted that these collectibles could be digital representations or references to internet memes, characters, current events, or trends. It mentioned the top meme coin WIF as an example of a digital collectible, as well as fan tokens and NFTs.

The SEC defined digital tools as crypto assets that perform a practical function. This category of crypto assets could be in the form of a membership, ticket, credential, title, instrument, or identity badge.

On Stablecoins And Digital Securities

The SEC stated that GENIUS Act-compliant stablecoins (payment stablecoins) will not be classified as securities. However, the agency added that there are situations in which stablecoins other than these payment stablecoins will meet the definition of “security” depending on the facts and circumstances.

Meanwhile, digital securities under the token taxonomy are financial instruments that are typically classified as securities and represented by a crypto asset. This focuses on real-world assets (RWAs) such as stocks that are moving on-chain. As such, tokenized stocks remain securities despite taking a different form on-chain. “A security is a security regardless of whether it is issued or otherwise represented, offchain or onchain,” the SEC noted.

The SEC indicated that the Howey Test will continue to form the basis for determining whether a crypto asset qualifies as a security. This will focus on the investment contract analysis, determining whether it is a “contract, transaction, or scheme” in which people invest and expect to profit from the efforts of others.