This research report originates from a multi-part series titled Law and Ledger, which examines one of the most important and unsettled questions in digital-asset law: when, and under what circumstances, crypto falls within the reach of U.S. securities regulation.
Written By: Michael Handelsman and Alex Forehand for Kelman.Law
IS CRYPTO A SECURITY?
As courts, regulators, and market participants continue to wrestle with applying decades-old legal doctrines to blockchain-based assets, this series breaks down the core principles shaping the modern landscape—from the Howey test and so-called utility tokens, to secondary-market transactions, DeFi, staking, NFTs, and the shifting regulatory posture of the SEC and CFTC.
The goal is to provide a practical, legally-grounded framework for understanding how U.S. law is adapting to crypto in real time.
Part I: The Howey Test
U.S. securities law does not contain a dedicated statute for digital assets. Instead, the SEC and courts continue to apply the “investment contract” doctrine from SEC v. W.J. Howey Co.—a 1946 Supreme Court case involving orange groves, not distributed ledgers. Despite that anachronism, Howey remains the primary analytical tool for determining whether a token sale, issuance, or distribution triggers federal securities laws in the United States.
It is important to note that the Howey definition of an investment contract is merely one of the dozens of assets that qualify as a security subject to SEC regulation. The SEC has made clear that tokenized securities—be that a tokenized bond, stock, or security-based swap—are still securities, and merely putting an asset on blockchaindoes not “transform the nature of the underlying asset.”
Because of its prominence within the securities analysis, however, this Part focuses on the four elements of the Howey test, how the SEC and courts adapt those elements to token ecosystems, and why the distinction between a token and an investment contract is now one of the most important developments in cryptojurisprudence.
The Four Elements of Howey
In August 2019, the SEC released a framework for how they analyze digital assets under the Howey test for investment contracts. To establish the existence of an investment contract, one must establish four elements:
(1) an investment of money
(2) in a common enterprise
(3) with a reasonable expectation of profits
(4) to be derived from the efforts of others.
1. Investment of Money
According to both courts and the SEC, an investment of money includes fiat, other digital assets, or anything else of value. Because time and labor are considered to be of value, this prong is often easily satisfied.
2. Common Enterprise
With respect to a common enterprise, courts have adopted multiple theories. Horizontal commonality focuses on the pooling of funds, and whether each investors’ fortunes rise and fall together, whereas vertical commonality is more closely tied to the efforts of the promoter, focusing on network growth, tokenomics, and treasury-managed development.
While the SEC originally stated in its 2019 guidance that they typically find this prong satisfied, actual case law suggests otherwise. In reality, this prong is often a hurdle for secondary transactions, particularly under horizontal commonality. For example, in the SEC’s case against Ripple, the court only found a common enterprise with respect to the original institutional sales, but not buyers on the secondary market.
3. Expectation of Profits
For a reasonable expectation of profits, this prong focuses on whether a typical purchaser—not a technical user, a speculative trader, or any specific user—was led to reasonably believe that the token could appreciate in value. Importantly, this analysis is objective. Even if some buyers intend to use the token for utility, the inquiry focuses on what the issuer’s conduct would lead a reasonable person to believe.
If promotional materials, such as a whitepaper, pitch deck, or social media campaign highlight price potential, burn mechanisms, future listings, or token scarcity, courts and the SEC view this as evidence of a profit motive. Relatedly, promises of partnerships, roadmap milestones, or integrations that would increase token value are routinely cited in enforcement actions.
4. Efforts of Others
This is the “managerial efforts” prong—and it is where crypto cases are won or lost. Here, courts ask whether purchasers depend on the entrepreneurial, technical, or managerial efforts of a core team for the token to succeed in the way it was marketed.
Courts evaluate whether the issuer made statements that the team will build, integrate, or deliver features essential to the token’s success at any point in the future. If the network requires substantial future coding, feature releases, upgrades, or integrations before reaching its intended functionality, courts view purchasers as reliant on the team.
Attempts to build the ecosystem, such as partnerships, listings, user-acquisition strategies, and market-making arrangements, are all considered entrepreneurial efforts driving value. Further, retaining authority over treasury funds, token supply changes, validator sets, governance parameters, or upgrade mechanisms is heavily scrutinized.
It is important to note that this prong does not require total or permanent centralization. The inquiry is tied to the moment of the transaction: if purchasers are relying on the issuer’s managerial or technical efforts at that time, the prong is typically satisfied.
Importantly, ecosystems can—and often do—evolve. A network that begins in a centralized state may later decentralize to the point where purchasers are no longer depending on a core team. However, courts have not articulated a clear threshold for what constitutes sufficient decentralization. As a result, even projects that appear meaningfully decentralized may still face scrutiny if early purchasers reasonably relied on identifiable managerial efforts during the network’s formative stages.
How Courts Adapt Howey to Token Transactions
Because tokens do not fit neatly into Howey’s original fact pattern, courts evaluate the economic reality of each transaction rather than the technical mechanics of the blockchain. Courts have repeatedly emphasized that the focus is on the substance of the transaction, rather than its form.
This means that merely calling a token a utility token—or embedding features like staking, governance, or on-chain functionality—does not automatically insulate it from being part of an investment contract. Courts look past labels to the real-world incentives and expectations surrounding the transaction.
The Supreme Court emphasizes that Howey evaluates the entire scheme—the sale, the distribution plan, marketing, tokenomics, lockups, and the issuer’s conduct. The token’s code may be neutral, but the context of its sale is not.
When promotional materials emphasize token appreciation, trading liquidity, market listings, or growth potential, courts often find that purchasers have a reasonable expectation of profit. Statements in whitepapers, social media posts, investors decks, and public interviews frequently become key evidence.
Tokens sold before the network is usable or before meaningful functionality exists often satisfy Howey, because purchasers necessarily rely on the issuer’s future development work. This is where pre-launch SAFTs, early ICOs, and “beta” ecosystems are most vulnerable.
A functional network, however, is not the end of the analysis—ongoing entrepreneurial efforts tend to support Howey’s fourth prong as well. Thus, courts also scrutinize the issuer and founding team’s ongoing actions, including protocol development, incentives, ecosystem partnerships, treasury management, or public claims about future growth.
Relatedly, when a founding entity retains discretion over upgrades, treasury management, validator configuration, emissions schedules, or governance, courts generally find that purchasers depend on those managerial efforts.
Token v. Investment Contract
The most important doctrinal evolution in the last several years is the recognition—by multiple courts, and, recently, the SEC itself—that a token is not itself a security. Instead, the investment contract may arise from the way the token is offered or sold.
In SEC v. Ripple Labs, the court held that the token ( XRP) itself was not a security. The court differentiated between direct, institutional sales, which constituted investment contracts, and sales on the secondary-market, which did not satisfy Howey because the purchasers lacked any reasonable basis to expect profits from Ripple’s managerial efforts.
The SEC has now seemingly come to accept this view as well. In a recent speech by Atkins, the SEC Chair analogized tokens to the land in Howey, which now hosts golf courses and resorts instead of orange groves, to show that the underlying asset itself is not necessarily the security.
If the token itself is not a security, but certain methods of distribution are, then secondary transactions can be treated differently from primary sales. This means that exchanges may not be offering securities when the issuer’s ecosystem is decentralized or the issuer is no longer the source of value.
Key Takeaways
The Howey test remains the backbone of U.S. token analysis. Courts have adapted it to digital assets by examining context, incentives, and issuer behavior—not labels or technical features. Understanding this framework is essential for navigating issuance, exchange listings, secondary transactions, and risk management as the regulatory environment continues to evolve.
PART II: UTILITY TOKENS
Since the early years of the digital-asset industry, the term “utility token” has been used as a kind of shorthand for “not a security.” The idea was intuitive: if a token provides access to software, services, governance rights, or network functionality, then the reasonable expectation of purchasers is consumption rather than speculation, and should therefore fall outside the scope of the federal securities laws.
However, the SEC has consistently rejected the notion that utility alone immunizes a distribution from Howey, having brought cases against the utility tokens LBRY and UNI. Instead, the SEC and courts alike apply a holistic, fact-intensive analysis that looks beyond the token’s technical purpose.
The result is a constant tension between the marketing narrative of utility and the legal and economic reality of how these tokens are sold. This Part examines why “utility token” is not a safe harbor, how courts actually weigh functionality in practice, and which factors most often determine whether a supposedly “use-based” token salestill qualifies as an investment contract.
Utility Is Not a Dispositive Factor
The core misconception is that a token with functional value—access to a protocol, governance participation, staking rights, payments within an app, or other use cases—automatically falls outside the securities regime.
Under Howey, the existence of utility is a relevant fact, but it does not override the broader economic reality of a transaction. A token can be a component of a functioning network and still be sold in a manner that creates a securities contract.
If the manner of the sale conveys the message that purchasers are acquiring something with an expectation for profit, and that profit is derived from the issuer’s efforts, courts find that the Howey test is satisfied—irrespective of utility.
However, the idea that the token itself is not necessarily a security is promising and appears to be supported by the current administration. SEC Chair Paul Atkins recently distinguished the token, which is not necessarily a security, from the investment contract, which is a security, and focused on the offering itself rather than the underlying asset.
Timing and Network Functionality at Launch
One of the most influential factors in utility-token cases is when the token is sold relative to the network’s development. If tokens are offered before the protocol is live, before key features are operational, or before users can meaningfully interact with the ecosystem, courts typically interpret the sale as requiring purchasers to rely on the issuer’s future work. That future work is precisely what the Howey analysis refers to as the entrepreneurial or managerial efforts of others.
This is why early ICOs, presales, and SAFT-based distributions often face heightened scrutiny. Purchasers in these contexts are not using the token for its utility; they are waiting for the issuer to build something that will generate that utility—and potentially increase the token’s value. This reliance on future development is consistently treated as a hallmark of an investment contract.
Issuer Control and Managerial Efforts
At the heart of the utility-token debate is the question of who actually drives value. Courts routinely examine whether future ecosystem growth depends on identifiable managerial or entrepreneurial efforts by the issuer, founding team, or a central development entity.
If purchasers reasonably rely on those individuals or entities to deliver upgrades, integrations, roadmap milestones, partnerships, or stability mechanisms, the transaction typically satisfies Howey’s “efforts of others” prong—regardless of the token’s functional design.
Governance tokens, however, add a layer of complexity to this analysis. Their very premise is that token holders participate in directing the project, which creates a colorable argument that purchasers are relying on their own efforts—collective governance—rather than on a centralized team.
The SEC, however, has refused to treat this argument as dispositive. Instead, they apply the court’s same holistic, economic-reality test: How meaningful is the governance? Do token holders actually control development, treasury decisions, or core parameters, or is governance limited, cosmetic, or subject to de facto issuer control?
And even where governance is substantial, courts still ask whether the token was marketed with profit-focused messaging or whether purchasers nonetheless expected value growth tied to a core team’s continued involvement.
In short, governance features can be a relevant decentralization factor, but they are not a safe harbor and must be weighed alongside all other circumstances.
A practical heuristic is the so-called “Bahamas test”: if the issuer’s team disappeared tomorrow—“packed up and moved to the Bahamas”—would the project continue functioning, and would the token still hold its value?
If the answer is no, that strongly suggests purchasers are relying on the issuer’s ongoing managerial efforts, reinforcing Howey’s fourth prong. If the answer is yes, that supports decentralization, though even that is not dispositive without examining the broader transaction context.
Ultimately, this inquiry remains highly fact-specific and tied to the moment of the transaction. A network may later decentralize to the point where purchasers no longer depend on issuer efforts, but the legal question hinges on whether such reliance existed when the tokens were sold. Courts have not drawn a clear line for when decentralization becomes sufficient, leaving this as one of the most persistent and unresolved uncertainties in U.S. digital-asset law.
Key Takeaways
The modern case law makes one point unmistakably clear: utility is not a safe harbor. A token may be thoughtfully engineered, widely used, and integral to a functioning network—and still be sold in a way that constitutes an investment contract.
What matters to courts is the full economic context: how the token is sold, what is promised, how the issuer behaves, and whether purchasers are relying on the efforts of others to generate value.
Utility will always be relevant. It may even be a persuasive factor in certain contexts, especially where the token’s primary purpose is genuinely consumptive and the ecosystem is already decentralized. But in 2026, no court has treated utility as dispositive. The myth persists in industry marketing, but the legal reality remains unchanged: utility does not erase the securities analysis.
PART III: SECONDARY MARKET TRANSACTIONS
The Token Itself Is Not Always the Security
A central development in modern crypto jurisprudence is the growing recognition that a token, standing alone as a digital object, is not automatically a security. What may constitute a security is the investment contract—the arrangement, scheme, or promises surrounding the token’s distribution—rather than the token itself.
Several courts have now endorsed this distinction, most prominently in SEC v. Ripple Labs, where the court held that secondary-market sales of XRP were not securities transactions because the purchasers were not buying based on Ripple’s managerial efforts. The legal significance is substantial: if the contract is the security rather than the token itself, then the security status does not automatically attach to all downstream transactions.
For now, the SEC seems to have adopted this position as well. SEC Chair Paul Atkins recently explained how “it is possible that a particular token might have been sold as part of an investment contract in a securities offering,” but that he believes “most crypto tokens trading today are not themselves securities.”
What’s more, Atkins also suggested that a token that was once a security may evolve into something other than a security, explaining:
“Networks mature. Code is shipped. Control disperses. The issuer’s role diminishes or disappears. At some point, purchasers are no longer relying on the issuer’s essential managerial efforts, and most tokens now trade without any reasonable expectation that a particular team is still at the helm.”
This distinction reshapes how secondary markets are analyzed. It means that the buying and selling of tokens on exchanges may not constitute securities transactions if those trades are detached from the original investment contract and the expectations foundational to that contract.
In such cases, exchanges facilitating those trades may avoid classification as securities brokers or exchanges, because the transactions no longer resemble investment contracts. The inquiry turns on whether the link between issuer-driven value expectations and the token trade persists, rather than on the token’s mere existence.
When Secondary Transactions Raise Securities Issues
The fact that tokens are not inherently securities does not mean every secondary-market transaction is safe. Those evaluating secondary trades should focus on whether the economic reality of the transaction continues to reflect an investment contract, even after tokens have entered general circulation.
The inquiry is whether purchasers still rely—explicitly or implicitly—on the issuer’s efforts to drive the token’s value, whether promotional statements or ongoing marketing campaigns continue to emphasize growth driven by the team, and whether the issuer maintains a significant role in “ecosystem management,” such as treasury operations, token issuance schedules, network upgrades, or public roadmap commitments.
It is also important to consider whether purchasers and developers possess asymmetric information. If insiders know materially more about the project’s health, progress, or risks than open-market buyers, that imbalance can support a finding that purchasers reasonably relied on the issuer’s efforts.
Critically, courts acknowledge that tokens can evolve, shifting from security-like instruments during early, issuer-dependent stages to commodity-like assets once decentralization meaningfully reduces reliance on a core team. Regulators, however, have just recently begun to embrace this dynamic view, leaving uncertainty around when or whether such a transition occurs.
Key Takeaways
The emerging consensus in crypto jurisprudence is that the token itself is not necessarily the security. Rather, the security—if one exists—is the investment contract surrounding the token’s distribution.
This distinction, reinforced by cases such as SEC v. Ripple Labs, has significant implications for secondary markets. If tokens are later traded in contexts detached from the original investment scheme and without reliance on the issuer’s managerial efforts, those transactions may fall outside the scope of federal securities laws.
At the same time, secondary-market transactions are not automatically exempt from scrutiny. Courts and regulators continue to examine the economic reality of the trade—particularly whether purchasers still reasonably rely on the issuer’s efforts, promotional activity, or ongoing ecosystem management to drive value.
As networks mature and decentralize, tokens may transition away from security-like characteristics, but the precise threshold for that evolution remains unsettled. For exchanges, developers, and investors alike, the key question is whether the expectations that originally formed the investment contract still meaningfully persist in the market.
PART IV: DEFI, STAKING, AIRDROPS, NFTS
Digital-asset activity has evolved far beyond simple token sales. Today, many of the most consequential legal questions arise not from standalone issuances, but from programmatic mechanisms— staking arrangements, liquidity pools, lending protocols, airdrop campaigns, and NFT ecosystems. These structures often challenge traditional securities analysis because value is generated through a mix of code, incentives, governance, and user participation.
Courts still apply Howey, but these contexts require a more granular and ecosystem-specific analysis. This Part examines how regulators and courts are likely to evaluate four major categories: staking programs, DeFiliquidity and lending, airdrop distributions, and NFTs.
Staking Programs
Staking occupies a unique position because it exists in both protocol-level and service-level forms, each of which raises different security considerations.
Centralized staking programs—where an intermediary pools assets, performs validation, sets reward terms, and markets yield—frequently implicate securities laws. The logic is straightforward: users contribute tokens, rely on the provider to generate returns, and expect profits derived from the provider’s managerial or technical efforts. This fits cleanly within Howey, especially where the provider advertises reward rates or characterizes staking as an “investment opportunity.” For more information, see our article Implications of SEC’s Crypto Staking Scrutiny for Providers.
However, when an intermediary performs only administrative or ministerial roles, does not retain discretion, and does not guarantee yield, the “efforts of others” and “expectation of profits” prongs of Howey are unsatisfied and the staking service is less likely to be a security.
Similarly, network-level staking—where a user stakes directly to a protocol or validator set without pooled management—is far less likely to be a securities transaction. Rewards are typically algorithmic, protocol-defined, and not contingent on an intermediary’s discretion. In this case, the SEC typically views these stakingtransactions as receipts, rather than securities. For more information, see our article Understanding the SEC’s August 2025 Update Regarding Crypto Staking.
DeFi Liquidity Pools and Tokenized Lending
DeFi protocols introduce another layer of complexity because value emerges from smart-contract interactions rather than a single issuer. Regulators analyzing DeFi structures focus heavily on control, discretion, and expectations of profit.
When users deposit assets into liquidity pools and receive LP tokens in return, the question becomes whether those LP tokens represent a profit-seeking arrangement tied to someone else’s efforts. Courts and regulatorsexamine whether the pool is run by a meaningfully decentralized protocol or whether identifiable developers still retain admin keys, upgrade authority, or influence over core economic parameters.
The source of yield is equally important. Algorithmic yields—driven by automated market-making or lending parameters—lean against securities classifications. But when developers or operators exercise discretion over APY, liquidity incentives, or risk parameters, or when yields are marketed as “returns,” the securities analysis becomes more aggressive.
Airdrops
Airdrops have long been informally treated as “safe” because they are distributed for free. But courts and regulators have made clear that free does not mean “not a security.” What matters is whether the airdrop forms part of a broader promotional or investment scheme.
Even Uniswap, once considered the “ gold standard” in token distributions for its unadvertised airdrop, received a Wells Notice from the SEC alleging securities violations.
Airdrops may constitute investment contracts when issuers use them to build speculative momentum, to bootstrap trading activity, or to attract speculative interest around a token launch. If promotional materials encourage recipients to expect the token’s price to appreciate, the distribution may satisfy Howey’s profit-expectation prong.
Tasks required to receive the airdrop—such as promotional posting, referrals, or social-media amplification—also raise concerns, because they resemble “work-for-token” marketing campaigns that the SEC views as integrated into a broader distribution scheme. Even retroactive airdrops to protocol users can raise issues if they are framed as a reward for participation in a project expected to grow due to ongoing managerial efforts.
The bottom line: an airdrop can be free and yet still constitute part of a securities transaction when viewed holistically.
Non-Fungible Tokens ( NFTs)
Most NFTs, as unique digital objects used for art, collectibles, or membership access, are not securities. Their value typically turns on cultural relevance, artistic quality, scarcity, or personal consumption. But NFTs can cross into securities territory depending on how they are structured and promoted.
Fractionalized NFTs frequently resemble investment vehicles because purchasers receive proportional interests in an asset with potential for appreciation. Similarly, projects that promise royalties, yield distributions, buybacks, or profit participation expose themselves to classic Howey analysis. If NFT creators emphasize “floor price growth,” roadmap execution, a future metaverse, or team-driven appreciation, courts may find a reasonable expectation of profit tied to the artists’ or developers’ efforts.
Conversely, NFTs designed for practical utility—membership passes, in-game assets, digital identity, or event access—tend to fall safely outside securities treatment, especially when sold at a fixed price, used immediately, and marketed around consumption rather than investment.
As with all frameworks, courts focus on economic reality, not the terminology. The same NFT collection could be a security or not depending on how it is marketed, what rights it conveys, and how much value purchasers reasonably attribute to the builders’ ongoing managerial work.
Key Takeaways
Special contexts like staking, DeFi, airdrops, and NFTs illustrate a recurring theme: the technology does not determine the legal outcome—economic reality does. Courts evaluate whether participants rely on identifiable managerial efforts, whether profits are expected, whether the underlying system is truly decentralized, and whether discretion or control remains with the team behind the protocol.
These contexts do not get special treatment under securities law. They simply require more careful, fact-intensive application of Howey to new economic structures. As these ecosystems continue to evolve in 2026, the line between commodity-like use and investment-like structure remains one of the most important—and most contentious—areas of crypto law.
PART V: THE REGULATORY LANDSCAPE IN 2026
The U.S. regulatory environment for digital assets in early 2026 remains fragmented, policy-driven, and dependent on shifting administrative priorities. While courts have supplied some clarity—especially around secondary-market transactions and the distinction between tokens and investment contracts—the federal regulatory architecture is still defined more by agency posture than by statute. This Part surveys the key players, their current approaches, and the status of legislative efforts as we enter 2026.
SEC Enforcement in 2026
The SEC continues to exert significant influence over the digital-asset industry, although its posture has shifted notably from its peak enforcement years. The agency still prioritizes cases involving unregistered exchanges, staking-as-a-service platforms, token sales tied to fundraising, and airdrop-based growth campaigns, reflecting a focus on intermediaries and promotional schemes rather than decentralized protocol activity.
Despite this, 2026 continues to bring visible signs of restraint. Senior leadership has issued pro- cryptospeeches and the commission created a Crypto Task Force whose goal is to shift the agency away from regulation-by-enforcement toward developing a comprehensive regulatory framework. Notably, the SEC removed digital assets from its 2026 Examination Priorities, signaling that the sector is no longer considered a special risk area warranting heightened scrutiny.
This shift suggests a growing recognition—both within the agency and across the broader regulatory ecosystem—that aggressive enforcement is not a substitute for a coherent statutory framework.
Still, the SEC’s tone is not a legal guarantee. Enforcement priorities change with administrations, and without explicit federal legislation, the current moderation remains a matter of policy discretion, not binding law. As a result, the industry cannot rely on today’s lighter touch persisting indefinitely.
CFTC v. SEC Jurisdiction
Dual jurisdiction has become a defining feature of U.S. digital-asset regulation. The CFTC has consistently taken the position that most tokens—particularly those with decentralized or commodity-like characteristics—are commodities under the Commodity Exchange Act. The SEC, by contrast, treats many tokens as investment contracts, especially when tied to early-stage ecosystems, issuer-driven growth, or fundraising activities.
Because a token can be both a commodity and part of an investment contract, regulation often overlaps. This is most visible in increasingly common categories such as:
- DeFi derivatives, where automated protocols may facilitate swaps or margin-like exposures;
- Perpetual futures markets, which fall squarely within CFTC derivatives jurisdiction but may involve tokens distributed through SEC-regulated transactions; and
- Staking or validator services, which may implicate both investment-contract considerations (under the SEC) and commodity-based service arrangements (under the CFTC)
This duality creates persistent uncertainty. Market participants often find themselves navigating two federal regimes simultaneously, even when the agencies’ statutory mandates do not fully align.
Pending Federal Legislation
Congress continues to debate multiple digital-asset market-structure bills, including versions of what has commonly been referred to as a federal CLARITY Act. While the details vary across proposals, these bills generally aim to:
- Define when a token transitions from a security to a commodity, giving issuers a pathway out of SEC jurisdiction once decentralization thresholds are met.
- Create a federal registration regime for “digital commodities” issuers, allowing compliant token offerings without defaulting to securities–law frameworks.
- Clarify exchange registration and oversight requirements, delineating when platforms fall under SEC versus CFTC supervision.
In mid-2025, the House of Representatives took a significant step toward establishing a federal framework for digital-asset markets by passing the Digital Asset Market Clarity Act of 2025 (“CLARITY Act”) with broad bipartisan support in a 294–134 vote. The legislation followed closely behind the Guiding and Establishing National Innovation for U.S. Stablecoins (“GENIUS”) Act, which had already created a federal regulatory regime specifically for stablecoins.
While the GENIUS Act addressed a narrow segment of the industry, the CLARITY Act was designed to tackle a broader question: how the federal government should regulate digital commodities—assets whose value is tied to the operation and use of blockchain networks.
After clearing the House, the legislative process shifted to the Senate, where jurisdiction over digital-asset regulation is divided between the Senate Banking Committee, which oversees the SEC, and the Senate Agriculture Committee, which oversees the CFTC. Both committees began drafting their own versions of market-structure legislation, but bipartisan negotiations encountered substantial obstacles toward the end of 2025.
Lawmakers raised several concerns about the proposal, including the absence of stronger ethics provisions to prevent potential conflicts of interest among regulators and market participants and the need for clearer consumer-protection measures designed to safeguard customer assets and reduce conflicts within trading platforms.
Additional disagreements centered on how decentralized finance should be treated within the regulatory framework and how to ensure the institutional independence of the CFTC. Although the Senate Agriculture Committee ultimately advanced a revised version of the CLARITY Act on a party-line vote, discussions in the Senate Banking Committee stalled into early 2026. The impasse reflected both political disagreement and shifting industry dynamics, as some prominent crypto figures temporarily withdrew their support for the legislation.
More recently, however, renewed dialogue between major banks and digital-asset companies—particularly around issues such as stablecoin yield payments—has suggested that a workable compromise may be emerging. While the legislative path remains uncertain, these discussions have revived momentum around federal market-structure legislation and reopened the possibility that a comprehensive digital-asset framework could eventually reach the President’s desk—a move the President has strongly supported.
While the GENIUS Act regulates stablecoins specifically, as of 2026, no unified federal regulatory framework governs digital assets generally. Instead, the U.S. landscape remains a patchwork of agency interpretations, enforcement cases, judicial rulings, and administrative guidance.
In the absence of federal legislation, states continue to fill the gaps through money-transmission laws, virtual-currency licensing regimes, digital-asset statutes, and consumer-protection frameworks. The result is a multijurisdictional compliance challenge where firms must navigate both federal uncertainty and state-by-state fragmentation.
Key Takeaways
By early 2026, U.S. crypto regulation is at a turning point. The SEC’s tone has softened, the CFTC maintains its commodity-based approach, and Congress shows real—though still unrealized—momentum toward building a comprehensive framework.
But until legislation establishes clear lines of authority and a consistent pathway for token issuance and exchange operation, regulatory uncertainty will continue to shape the industry. The practical reality for builders, exchanges, validators, and investors is that compliance remains a moving target—one that requires close attention to both evolving case law and shifting agency priorities.
PART VI: PRACTICAL COMPLIANCE GUIDANCE
With the legal landscape still fragmented and formal rulemaking lagging behind technological evolution, compliance in 2026 is less about “checking boxes” and more about maintaining defensible processes rooted in transparency, decentralization, and careful communication. This Part offers practical guidance for token issuers, exchanges and trading platforms, and developers/ DAOs navigating U.S. regulatory expectations.
Guidance for Token Issuers
Token issuers face the highest regulatory exposure, particularly during early-stage development and distribution. The most important principle is that compliance begins before launch, not after. Addressing securities-law risks early—through careful drafting, controlled marketing, and intentional structuring—avoids the far greater costs of restructuring a token, unwinding sales, or defending an enforcement action.
Issuers should aim to launch tokens with actual, functional utility, not promises of features that will arrive later. Selling tokens before the network works is one of the strongest indicators of reliance on future managerial efforts, which drives Howey analysis.
Equally important is communication: promotional statements, roadmaps, and white papers should avoid any suggestion that token value will appreciate or that purchasers should expect speculative returns. Communications must be factual, careful, and non-promotional, focusing on what the product does—not on what the token might someday be worth.
If fundraising is unavoidable, issuers should raise capital through established securities exemptions—Reg D, Reg CF, Reg S, or similar structures. Crucially, issuers must avoid the misstep of registering the token itself as a security, which locks the asset into securities status indefinitely. Remember: tokenized securities are still securities. The proper approach is to register or exempt the fundraising instrument, not the token that may later circulate in a decentralized ecosystem.
Projects should also pursue real decentralization where possible. This includes distributing governance in a way that is meaningful, not cosmetic; documenting development milestones; and maintaining clear records of decentralization progress. These materials are often critical in enforcement investigations or exchange listings, where auditors or counsel may need to show how reliance on a core team diminished over time.
Guidance for Exchanges and Trading Platforms
Exchanges, both centralized and decentralized, often sit at the center of regulatory scrutiny. Their compliance function now mirrors that of traditional financial institutions in several ways.
Platforms should maintain robust token-classification frameworks that assess factors such as issuer conduct, governance structure, marketing materials, network decentralization, and token utility. Classification should not be static: exchanges must conduct ongoing monitoring of issuer statements, codebase changes, roadmap updates, and public marketing to ensure that a token’s risk profile has not shifted.
Reviewing promotional materials—white papers, social media posts, investor communications—is essential. Exchanges have often been criticized for listing assets marketed with explicit or implicit profit promises.
Finally, exchanges should maintain clear delisting procedures and on-chain/off-chain surveillance tools. The ability to identify manipulative activity, respond to red flags, or delist tokens that later show securities characteristics is increasingly a regulatory expectation.
Guidance for Developers and DAOs
Developers and decentralized organizations face a different challenge: balancing innovation with legal risk without undermining decentralization goals. The key is reducing the industry’s most common enforcement trigger—dependence on a small, identifiable team.
Projects should minimize reliance on centralized development groups by transitioning responsibilities to community governance, distributing operational authority, and reducing unilateral control. One of the most important steps is transitioning admin keys to multisignature arrangements or decentralized governance modules, ensuring no single actor or entity holds privileged power over protocol parameters.
Governance structures should also be transparent and procedural, not ad hoc. Clear voting rules, published upgrade pipelines, conflict-of-interest policies, and well-documented governance decisions help demonstrate that value is not driven by a small promoter group.
Reward structures, while often desired, require particular caution. Tokens that distribute ongoing payments resembling dividends or revenue shares invite securities analysis, especially if framed as part of an investment thesis. Instead, reward mechanisms should be algorithmic, utility-driven, or tied to protocol participation, not passive financial return.
Finally, DAOs and developers should maintain careful documentation of decentralization timelines, including public explanations of how control is reduced, milestones achieved, and governance expanded. Courts and regulators increasingly expect evidence—rather than assertions—that decentralization has occurred.
Key Takeaways
In the absence of comprehensive federal legislation, compliance in 2026 hinges on operational discipline, transparency, and adherence to the principles courts repeatedly emphasize: economic reality, investor expectations, and the degree of reliance on identifiable managerial efforts.
Token issuers, exchanges, and developers who build with these principles in mind are better positioned not only to mitigate regulatory risk but to create durable, credible ecosystems that can thrive regardless of shifts in agency posture or political cycles.
SO…IS CRYPTO A SECURITY?
If the answer isn’t obvious by now, that’s not an accident. The legal status of digital assets in the United States is still evolving. Courts have begun to clarify key principles—most notably that the securities analysis focuses on the investment contract surrounding a token rather than the token itself—but the broader regulatory framework remains incomplete. As a result, participants across the crypto ecosystem must navigate a landscape shaped by decades-old legal doctrine, modern technological innovation, and regulatory priorities that continue to shift.
While the rules are still developing, several themes have emerged clearly: courts prioritize economic reality over labels, investor expectations over technical features, and reliance on identifiable managerial efforts over claims of decentralization. Projects that understand and structure around these principles are better positioned to navigate regulatory scrutiny and build sustainable ecosystems.
As digital assets continue to mature, the legal framework surrounding them will inevitably evolve as well. Until clearer statutory guidance emerges, however, the intersection of law and ledger will remain one of the most dynamic—and consequential—areas of modern financial regulation.
Staying informed and compliant in this evolving landscape is more critical than ever. Whether you are an investor, entrepreneur, or business involved in cryptocurrency, our team is here to help. Kelman PLLC provides the legal counsel needed to navigate these exciting developments. If you believe Kelman PLLC can assist, schedule a consultation here.