There is no reliable label-only test for deciding whether a crypto asset is a security or a commodity under U.S. federal law. Start with the specific asset and transaction, then examine the rights it gives holders, the system’s functionality, the issuer’s promises, and whether purchasers reasonably expect profits from another party’s essential managerial efforts. The SEC’s March 17, 2026 interpretive release and its September 28, 2026 FAQ provide the current agency framework described here; they are agency interpretations, not a statute or a universally binding court ruling.
First separate the asset from the transaction
Ask two different questions: what is the crypto asset, and what legal arrangement surrounds this particular offer, sale, resale, staking service, wrapped token, or other transaction? A token that is not itself a security can still be sold as part of an investment contract. Conversely, placing a conventional financial instrument on a blockchain does not change the instrument’s underlying legal and economic characteristics. As the SEC’s March 2026 interpretive release puts it, “A security is a security regardless of whether it is issued, or otherwise represented, offchain or onchain.”
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Before evaluating the facts, record the exact token, the transaction being assessed, its date and jurisdiction, what purchasers were told, the rights attached to the token, and how developed and controlled the associated system was at that time. A conclusion about one transaction or point in time does not automatically settle another.
Use Howey to screen for an investment contract
The central U.S. federal investment-contract test comes from the Supreme Court’s Howey decision. It asks whether the arrangement involves an investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the essential managerial efforts of others. Under the SEC’s 2026 interpretation, these elements operate together: if any element is absent, the arrangement is not an investment contract under Howey.
Do not treat the test as a checklist in which one technical feature decides the answer. Examine the complete arrangement and the purchaser’s reasonable understanding of it. “Profits” may include expected gains, and the key question is whether those gains are expected to depend on significant work by others that affects the enterprise’s success—not merely on routine or ministerial tasks.
Compare the facts that point in different directions
The following are screening considerations, not a mechanical scorecard or safe harbor. A token can have mixed features, and the transaction’s representations and context may matter as much as its code or name.
| Issue | More consistent with a security or investment contract | More consistent with a functional-system or commodity-oriented analysis |
|---|---|---|
| Rights conveyed | The arrangement gives holders rights or claims to income, profits, redemption, or an underlying financial instrument. | The asset primarily provides technical or use rights within a system, such as paying transaction fees or participating in validation or governance. |
| Functionality and use | The system is not yet functional for the advertised purpose, or purchasers appear to be relying on promised future development. | The asset can be used as programmed in a functional system, and its utility is necessary to participate in or use aspects of that system. |
| Source of expected return | Purchasers reasonably expect profits from significant work promised by an issuer or another responsible party. | Value is tied to the system’s programmatic operation and market supply and demand, rather than promised managerial work. |
| Control and remaining work | A promoter retains meaningful control or has important development, launch, or operating work left to perform. | The system operates functionally without a central party able to control its success or failure, subject to the facts and assumptions involved. |
| Communications and sale | Purchaser-facing statements promise milestones, development, business operations, or other efforts said to drive returns. | The sale is not accompanied by promises of essential managerial efforts on which purchasers reasonably rely for profit. |
| Timing and transaction type | The asset is offered in a particular investment arrangement, even if its status or the surrounding facts later change. | A later transaction may occur after the relevant promised efforts have been fulfilled or the investment contract has otherwise separated, depending on the facts. |
Follow a practical review, step by step
- Define the question. Write down the token, the precise offer or transaction, the date, and the jurisdiction. Assess a staking or yield arrangement, for example, separately from the token that may be used in it.
- Read the rights, not just the marketing name. Identify claims to profits or income, redemption rights, governance powers, custody arrangements, or rights in an underlying security. A label such as “utility token” or “commodity” does not settle the legal analysis.
- Test each Howey element against the arrangement. Consider whether purchasers invest money in a common enterprise, whether they reasonably expect profits, and whether those profits depend on another party’s significant managerial efforts. Note which facts support or weaken each element.
- Collect the actual purchaser-facing statements. Review offering materials, public announcements, and other communications relevant to the sale. Look for concrete promises about development, launching a network, operating a business, meeting milestones, or deploying resources. Consider who made each statement, when, to whom, and in what context.
- Check what the system could actually do then. Compare the asset’s programmed utility with the system’s functional state at the transaction date. Record what remained to be built and who controlled or performed that work; distinguish operational use from future plans.
- Ask what drives expected value. Determine whether the purchaser’s expected return depends on essential work by an issuer or another party, or instead on use of a functioning system, its programmatic operation, and supply and demand. Do not assume that having utility alone resolves the Howey analysis.
- Review the relevant category and transaction separately. Check whether the asset is better understood as a digital commodity, collectible, tool, stablecoin, or digital security under the SEC’s taxonomy, then assess the specific transaction. If the facts are incomplete or the arrangement is complex, leave the classification provisional and seek advice from counsel experienced in securities and commodities law.
Understand the SEC’s five broad crypto-asset categories
The SEC’s 2026 framework groups crypto assets into five broad categories. The categories help organize the inquiry, but they do not replace analysis of rights, functionality, representations, and the particular transaction.
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| Category | What to examine |
|---|---|
| Digital commodities | The SEC describes these as tied to a functional crypto system: the asset is needed to participate in or use aspects of it, and value derives from programmatic operation as well as supply and demand. The release identifies Bitcoin (BTC), Ether (ETH), and XRP as examples based on their characteristics, terms, and functions as of March 17, 2026. Those examples are not blanket determinations about every transaction involving those assets. |
| Digital collectibles | Consider the asset’s actual characteristics and rights rather than assuming that a collectible label automatically resolves how a particular offer or sale is treated. |
| Digital tools | Examine the practical function the asset performs and whether purchasers are instead being offered an investment arrangement dependent on promised managerial efforts. |
| Stablecoins | Do not treat all stablecoins alike. Payment stablecoins within the relevant statutory category have particular treatment; other stablecoins may be securities depending on their features. |
| Digital securities | These are financial instruments represented in crypto form. Their blockchain representation does not change the underlying instrument’s characteristics or rights. |
The SEC’s release describes digital commodities, collectibles, and tools as categories of assets that are not themselves securities, while recognizing that they may be sold subject to an investment contract. A stablecoin or digital security requires attention to its specific features rather than a forced commodity-versus-security label.
Know what a commodity conclusion does—and does not—establish
The SEC’s March 2026 release uses “commodity” in an economic and commercial sense for fungible assets with utility whose value is determined by supply and demand. It also explains 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 definition of a commodity.
That does not mean every non-security crypto asset is automatically subject to the CFTC’s exclusive jurisdiction, or that a finding about the asset resolves the treatment of every derivative, exchange activity, or other transaction. The SEC and CFTC announced coordination around administering the Commodity Exchange Act consistently with the SEC interpretation; the consequences still depend on the statute, instrument, market, and activity involved.
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An asset can be offered through an investment contract while an issuer is promising essential work, and later become separate from that investment contract in circumstances described by the SEC, such as fulfillment or abandonment of the promised efforts or inability to fulfill them. The SEC’s current FAQ says that, under the circumstances it describes, another party’s assumption of the issuer’s promised efforts prevents separation. The answer depends on the facts; it should not be generalized to every project or transfer.
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Later separation does not erase potential liability for an earlier unregistered offer or for material misstatements. Keep the analysis tied to the relevant date and transaction rather than applying a later state of the network retroactively.
State a conclusion carefully
For a real-world review, use a provisional conclusion such as “the facts are more consistent with an investment contract” or “the facts are more consistent with a functional-system, commodity-oriented analysis.” Record the date, jurisdiction, transaction, materials reviewed, unresolved facts, and assumptions. A definitive answer for a named token or service may require legal advice, especially where rights, promotional statements, or control are disputed.
This is a U.S. federal-law screening framework, not individualized legal advice. The Howey test is Supreme Court doctrine; the SEC’s taxonomy and its 2026 application details are an agency interpretation that does not bind courts or every other regulator. The SEC’s March 17, 2026 release and FAQ updated September 28, 2026 are the current agency materials reflected here, but relevant statutes, court decisions, and agency positions can change.
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