SEC Plans Crypto Token Taxonomy in Regulatory Overhaul

In what could represent a fundamental shift in cryptocurrency regulation, SEC Chair Paul Atkins revealed that the agency is developing a comprehensive approach to digital asset oversight under the newly announced ‘Project Crypto.’ Speaking at the Federal Reserve Bank of Philadelphia, Atkins outlined plans to propose a structured token framework in the coming months, anchored firmly in the Supreme Court’s Howey test – the established standard for determining whether an asset qualifies as a security. This initiative marks the SEC’s most significant effort to date to modernize its regulatory approach to the rapidly evolving digital asset space.

The centerpiece of this regulatory overhaul is the introduction of a formal ‘token taxonomy’ designed to bring clarity to how various digital assets are classified under U.S. law. Atkins emphasized that while the agency works to define clearer regulatory pathways, enforcement against fraudulent activities will continue unabated. ‘Fraud is fraud,’ Atkins stated, underscoring the SEC’s commitment to investor protection even as it develops more nuanced regulatory frameworks for legitimate crypto projects.

The SEC’s proposed taxonomy organizes digital assets into four distinct categories: ‘digital commodities’ or ‘network tokens,’ ‘digital collectibles,’ ‘digital tools,’ and ‘tokenized securities.’ This classification system represents the agency’s attempt to recognize the diverse nature and functions of different digital assets while maintaining appropriate regulatory oversight. Atkins specifically noted that tokenized versions of traditional financial instruments ‘are and will continue to be securities,’ affirming the SEC’s jurisdiction over these assets.

However, in a significant acknowledgment of how digital assets evolve, Atkins stressed that investment contracts ‘can come to an end,’ meaning a token isn’t automatically classified as a security indefinitely. This perspective aligns with Commissioner Hester Peirce’s observation that while a project’s token launch might initially involve an investment contract, ‘those promises may not remain forever.’ The recognition that digital assets can transition between regulatory categories represents a more sophisticated understanding of how blockchain projects develop over time.

A key component of the SEC’s forthcoming proposal is a ‘package of exemptions’ designed to provide crypto projects with flexibility when selling tokens through investment contracts, without forcing them into traditional securities regimes. Atkins described this as an effort to ‘create a tailored offering regime for crypto assets,’ acknowledging that the unique characteristics of digital assets may require specialized regulatory treatment different from conventional securities.

The SEC’s regulatory initiative is carefully coordinated with ongoing congressional efforts to establish a comprehensive framework for digital asset regulation. Atkins explicitly noted that ‘the Commission’s work is designed to complement, not replace, Congress’s efforts,’ with the SEC’s taxonomy proposal meant to align with legislative developments. Recent congressional activity includes a new draft proposal from Senate Agriculture Committee Chairman John Boozman and Senator Cory Booker that would grant the Commodity Futures Trading Commission (CFTC) primary authority over non-security digital assets, echoing the House’s earlier CLARITY Act.

This inter-agency collaboration reflects growing recognition that effective digital asset regulation requires clear jurisdictional boundaries between the SEC and CFTC. Boozman emphasized that the congressional proposal aims to ensure regulators have the ‘tools, personnel, and resources necessary to oversee digital asset trading,’ indicating that both legislative and regulatory bodies are moving toward formalizing the U.S. crypto market’s legal foundation.

The SEC’s regulatory announcement comes amid significant developments across the digital asset ecosystem. The emergence of Celsius from bankruptcy, initiating repayment of over $3 billion to creditors, demonstrates the maturation of crypto market infrastructure and the effectiveness of existing legal frameworks in handling complex crypto bankruptcies. Simultaneously, the Italian Ministry’s commitment of $46 million in subsidies to develop blockchain projects highlights the global competition to establish leadership in digital asset innovation.

Market participants are closely watching how these regulatory developments might impact major protocols like Uniswap and its UNI token, particularly as global regulators push back against tokenized stocks. The SEC’s clearer classification framework could provide much-needed guidance for projects operating in regulatory gray areas, while the promised exemptions may create new pathways for compliant token offerings and trading.