SEC & CFTC issued regulatory clarity

Eight years ago, on April 29, 2018, quoting a crypto industry founder, Dr. Emin Gun Sirer, I wrote about Ethereum’s (ETH) decentralized nature, which qualified ETH as a commodity for US law purposes.

The regulatory uncertainty, regarding whether ETH [and other digital assets] is classified as securities or commodities, has historically been a primary barrier to institutional capital adoption since it created legal risks, complicated custody, and hampered compliance, causing investors to hold back in investing.

Two months after I wrote my article on June 14, 2018, former SEC Director of Corporation Finance William Hinman clarified in a speech that, based on the decentralized nature of the Ethereum network, current offers and sales of Ether (ETH) were not securities transactions. This signaled that ETH functioned more like a commodity than a security, reducing regulatory uncertainty and providing temporary regulatory clarity on its legal classification. 

Nevertheless, in the absence of authoritative regulatory certainty from the SEC or the  Commodity Futures Trading Commission (CFTC), lawsuits challenged whether ETH [and other digital assets] was a regulated security or a commodity.

Lawsuits in 2023–2024, including actions against KuCoin by the New York Attorney General (NYAG) and SEC actions involving liquid staking providers, highlighted significant regulatory uncertainty regarding whether ETH and staking services constitute securities. While early cases suggested a security classification, subsequent 2025 developments indicated a shift toward treating staking as “ministerial” and not securities, impacting the classification of ETH-related assets.

The SEC & CFTC Issued a Memorandum of Understanding (MOU)

Eight years after I wrote my article concerning the classification of ETH for US law purposes, on March 11, 2026, and the subsequent joint interpretation on March 17, 2026 the SEC and  CFTC finally issued a landmark MOU providing the most comprehensive regulatory clarity for digital assets to date resolving the uncertainty surrounding ETH [and other digital assets], with U.S. regulators formally classifying it as a commodity, overcoming the primary barrier to institutional adoption that existed in 2018. 

The guidance marked a shift from “regulation by enforcement” to a principles-based framework, explicitly stating that most digital assets are not themselves securities.  This provided regulatory clarity, placing these digital assets under the jurisdiction of the CFTC as opposed to the SEC, allowing them to be listed on designated contract markets for derivatives trading.

The CFTC has indicated a willingness to treat tokens as commodities if they are truly decentralized and not managed by a central party. The agencies define a decentralized system as one that “functions and operates autonomously with no person, entity, or group of persons or entities having operational, economic, or voting control”.  The framework acknowledges that tokens initially sold as part of an investment contract (security) can transition into a digital commodity once the network becomes sufficiently decentralized or functional.

Digital Commodities: Digital assets intrinsically linked to a functional system are commodities, with 16 digital assets classified as commodities that represent a significant shift from previous stances that often treated many of these digital assets as securities.

As of late March 2026, these 16 tokens collectively represent approximately 78% to 80% of the total cryptocurrency market capitalization.  As of early 2026, there are over 37 million unique cryptocurrencies and digital tokens created, according to The Motley Fool.

However, only about 10,000 to 17,000 are considered active or actively tracked on major platforms like CoinGecko, with a high percentage of the total being inactive, scams, or “dead coins”.  The vast majority of this share is held by BTC and ETH, which together account for nearly 70% of the entire market.

The remaining 14 tokens contribute a combined share of roughly 8% to 10%. 

1. Bitcoin (BTC)
2. Ethereum (ETH)
3. Solana (SOL)
4. XRP (XRP)
5. Cardano (ADA)
6. Chainlink (LINK)
7. Avalanche (AVAX)
8. Polkadot (DOT)
9. Hedera (HBAR)
10. Litecoin (LTC)
11. Dogecoin (DOGE)
12. Shiba Inu (SHIB)
13. Tezos (XTZ)
14. Bitcoin Cash (BCH)
15. Aptos (APT)
16. Stellar (XLM) 

Based on the MOU, native tokens that are intrinsically linked to a functional, decentralized crypto system—such as those used for “gas” (transaction fees) or governance—generally do not meet the definition of an investment contract under the Howey test and are not securities.

Xin Yan, Co-Founder and CEO of Sign, said, “The global impact of SEC and CFTC instituting a landmark joint regulatory framework is a positive one. It gives a green light to trillions of institutional capital that’s been sitting on the sidelines. I can see a lot of projects moving past the “Wild West” phase.

Digital Collectibles: The MOU issued by the SEC and CFTC significantly impacts the NFT collectible market by creating a “token taxonomy” that generally treats digital collectibles as non-securities. Digital collectibles that are fractionalized (providing fractional ownership in one asset) or structured with an expectation of profit from others’ managerial efforts may still be deemed securities.

The SEC’s 2026 interpretation clarifies that standard creator royalties do not, by themselves, transform a digital collectible into a security. However, if an NFT is marketed with promises of passive income or profits derived from the seller’s ongoing management, it could still be considered part of an investment contract (a security).

This guidance offers a path to a more stable NFT market.   While the era of speculative profile picture NFT hype has subsided, more NFTs are being listed with a focus on utility, real-world assets (RWAs),  brand engagement,  and sports betting.

Digital Tools: Assets with functional utility, such as membership tokens or digital credentials; these are not securities.

Stablecoins: Payment stablecoins issued under the GENIUS Act are excluded from the definition of a security.   

The Stablecoin market capitalization hit a record $320 billion in March, with FATF’s report quoting Chainalysis flagging that stablecoins accounted for 84% of illicit virtual asset transaction volume in 2025, often involving unhosted wallets and complex laundering techniques designed to obscure fund origins.

Xin Yan, Co-Founder and CEO of Sign—a Singapore-based firm building sovereign digital currency infrastructure—suggests that the Federal Reserve’s hesitation to issue a Central Bank Digital Currency (CBDC) before 2031, despite 49+ CBDC global pilot projects, creates a scenario where “the Fed is not directly competing with private stablecoins, while the slow U.S. CBDC adoption means U.S. commercial banks maintain control of the financial system rather than being disintermediated by a retail CBDC and continue to dominate the domestic financial market.” Yan argues that “the world is dividing into different camps.”

The CBDC vs. Stablecoin with China pushing its e-CNY (a CBDC) to enhance state control, while the U.S. leans towards pushing stablecoins to maintain dollar dominance”, a move seen as a defense against China’s potential challenge to the US-dominated payment system.

Digital Securities: Tokenized traditional financial instruments; these remain securities regardless of their on-chain format. 

Safe Harbors for Blockchain Activities

The joint interpretation confirms that several foundational activities generally do not involve securities transactions: 

Protocol Mining: Proof-of-work validation and mining pool participation.

Protocol Staking: Proof-of-stake validation, including custodial and liquid staking, provided service providers act in an administrative capacity.

Wrapping: Depositing assets for one-to-one redeemable tokens across chains.

Airdrops: Distributions where recipients provide no consideration (money or services) in exchange. 

Coordination of Digital Asset Legislation and its impact on Tokenization 

The regulatory landscape for digital assets in the US has undergone a historic transformation, characterized by the enactment of the GENIUS Act (July 18, 2025) and a landmark joint interpretation and memorandum of understanding (MOU) between the SEC and CFTC.

This shift, supported by the pending CLARITY Act, marks a definitive end to a decade of “turf wars” over digital asset jurisdiction, aims to stabilize markets, and has initiated a “re-onshoring” of crypto activity to the United States which represents the world’s largest cryptocurrency market, commanding roughly 23.6% of global crypto revenue in 2025 and will accelerate tokenization of financial markets. 

Wojciech Kaszycki, CSO of BTCS SA —  (formerly Vakomtek S.A.) is a Polish technology company headquartered in Warsaw, recognized as Europe’s first dedicated Digital Asset Treasury Company (DATCO) — believes “The regulatory clarity provided by the SEC and CFTC is a step in the right direction.   It will speed up tokenization of the global financial markets to allow for fractional ownership of expensive, traditionally restricted world assets like private credit, real estate, and infrastructure to bring liquidity, pricing to illiquid assets. Tokenization will make investing easier, thereby helping more people build long-term financial security and share in economic growth.”

As of early April 2026, the digital asset market is experiencing significant volatility, with Bitcoin trading around $65,000–$69,000 following a “double shock” from Middle East geopolitical tensions and broader risk-asset sell-offs. Amidst this, projects focused on Artificial Intelligence (AI) and Real-World Asset (RWA) tokenization have shown notable resilience, often outperforming the broader market.  Mirroring the world’s largest asset manager, BlackRock CEO Larry Fink’s commitment to tokenized funds positions the technology as the “next generation for markets”.

In his 2026 Chairman’s Letter to Investors, Larry Fink compared the current state of tokenization to the internet in 1996, arguing that it will fundamentally “update the plumbing” of the global financial system.  Fink argued that tokenization will fundamentally transform TradFi by making investing faster, cheaper, and more accessible, directly impacting how ownership is recorded and traded.