The US Securities and Exchange Commission’s Division of Corporation Finance (CorpFin) released a c
The US Securities and Exchange Commission’s Division of Corporation Finance (CorpFin) released a comprehensive statement on April 10, 2025, outlining what companies need to disclose when offering or registering crypto asset securities.
This statement (the SEC’s 2025 guidance) aims to reduce ambiguity regarding classifications of crypto tokens under US securities laws. It updates how the Howey test is used and introduces a clearer system to tell the difference between security tokens and non-security tokens.
The Howey test is a decades-old framework used to determine whether a crypto asset qualifies as a security. Four criteria that the test applies are investment of money, an expectation of profit, a common enterprise and reliance on the efforts of others.
A major highlight of the SEC 2025 guidance is the “reasonable expectation of profit” criterion. The SEC emphasizes that if token buyers expect profits based primarily on the efforts of a centralized team or promoter, the token is likely a security. The SEC noted, “Where entrepreneurial efforts drive price appreciation, tokenholders effectively invest in a common enterprise.”
The guidance also introduces a three-pronged framework:
- Initial sale context: Whether the token was marketed as an investment
- Ongoing use: If the token provides functional utility on a decentralized network
- Issuer influence: Degree of control retained by the founding team or foundation.
Tokens with no expectation of profit, like Ether (ETH) after the Merge, or stablecoins backed by real, transparent reserves, usually don’t count as securities.
But tokens tied to governance rights or revenue sharing could still be classified as securities, depending on how they work.
Did you know? The Howey test was first used in 1946. Despite being older than the internet, it still shapes whether digital assets qualify as securities today.
Tokens likely deemed securities by the SEC
The SEC’s 2025 rules say crypto tokens are likely securities if they act like investment contracts. This means tokens sold with promises of profits, driven by a central team’s efforts, will be categorized as securities.
The SEC’s 2025 guidance outlines specific scenarios in which crypto tokens will likely be classified as securities. These typically involve projects that are still centrally controlled, promote profit expectations, or offer limited utility at the time of sale.
Below are the common characteristics that may trigger securities classification:
- ICOs with profit-centric marketing: Tokens launched through initial coin offerings (ICOs) are a major target, especially when the project team markets them based on future price appreciation or project success.
- Profit-sharing governance tokens: Governance tokens that offer dividends, revenue sharing or protocol profits can be classified as securities due to their resemblance to traditional investment contracts.
- Utility tokens with financial incentives: Even so-called utility tokens may qualify as securities if buyers are led to believe the tokens will increase in value or offer financial benefits.
- Legal precedents from court rulings: In the LBRY case (2023), the token was ruled an unregistered security. Similarly, the Ripple case determined XRP’s (XRP) institutional sales were securities, while public sales were not.
- Tokens with centralized control or pre-mining: The SEC warns that tokens that are pre-mined, centrally managed or promoted with value-growth promises lack decentralization and are likely to fall under securities regulation.
In 2025, the SEC stressed that tokens controlled by a core team, pre-mined or limited in supply with promises of value growth will likely be securities. These tokens often aren’t decentralized enough or lack user utility at the time of sale, reinforcing their classification under federal securities laws.
Tokens not likely deemed securities by the SEC
The SEC’s 2025 rules say crypto tokens aren’t likely securities if they are used like tools or goods, not for making money. These tokens let you use a platform’s services, like in-game items, digital access or nontransferable membership credits, and aren’t pitched as investments.
While the SEC’s 2025 guidance focuses on investor protection, it also recognizes that not all tokens meet the criteria of securities. Tokens that are decentralized, utility-driven or serve non-investment purposes may fall outside the scope of securities laws.
Below are key characteristics that reduce the likelihood of a token being classified as a security:
- Fiat-backed stablecoins with transparent reserves: Stablecoins that are 1:1 backed by fiat currency, regularly audited and designed for payments rather than investments are generally not viewed as…
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