Staking out the Perimeter: SEC Outlines Limits of Jurisdiction Over Digital Assets

For nearly a decade, crypto market participants have sought additional clarity about when and how federal securities laws apply to the creative new tokens, protocol mechanisms, and incentive structures arising in digital markets. For the moment, congressional efforts to pass comprehensive crypto market legislation have stalled. In the meantime, the Securities and Exchange Commission (“SEC”) announced earlier this month its own formal interpretation of when it believes securities laws apply—and do not apply—to digital assets.¹Securities and Exchange Commission, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Final Rule, Mar. 17, 2026 (available at: https://www.sec.gov/files/rules/interp/2026/33-11412.pdf).

On March 17, 2026, the SEC issued new interpretative guidance (the “Guidance”) from the Commission itself (not just senior staff), addressing the definition of a “security” as applied to crypto assets and transactions involving crypto assets. In the public messaging announcing the Guidance—in statements by Chairman Paul Atkins²Paul Atkins, Regulation Crypto Assets: A Token Safe Harbor, Mar. 17, 2026 (available at: https://www.sec.gov/newsroom/speeches-statements/atkins-remarks-regulation-crypto-assets-031726)., his fellow commissioners³Paul Atkins, Hester Peirce, & Mark Uyeda, Crypto Markets – and the American People – Deserve Clarity, CoinDesk, Mar. 19, 2026 (available at: https://www.coindesk.com/opinion/2026/03/19/crypto-markets-and-the-american-people-deserve-clarity)., and the head of SEC’s Division of Corporation Finance⁴James Moloney, The Last Chapter in the Book of Howey, Mar. 17, 2026 (available at: https://www.sec.gov/newsroom/speeches-statements/moloney-statement-book-of-howey-031726).—the SEC positioned its new Guidance as a more tailored framework for digital assets, while affirming that the so-called “Howey test” remains binding legal precedent. The Guidance, which takes effect immediately as an interpretive rule but nonetheless invites public comment, establishes a new taxonomy of multiple categories of digital assets and then identifies only one category, “digital securities” that the SEC views as securities. The Guidance also describes the SEC’s views on when the concept of an “investment contract” applies to bring securities laws into play. And it addresses when an investment contract ceases, at which point securities laws would no longer apply to the asset. The Guidance also walks through the SEC’s interpretation of the limits of securities laws around several long-debated concepts in crypto markets, including protocol mining, protocol staking, wrapping, and air dropping.

In this client alert, we highlight the key interpretations included in the Guidance, potential next steps, and some risks and opportunities stemming from these new developments.

Aiming to Set Guardrails

Progress on crypto regulation has proven fitful. During the past couple of years, however, policymakers have advanced several ambitious bills and regulatory ideas. In past alerts, we covered Congress’s progress on stablecoin legislation⁵King & Spalding, Could Stablecoin Legislation Be Finally Leaving the Stable?, Feb. 18, 2025 (available at: https://www.kslaw.com/news-and-insights/could-stablecoin-legislation-be-finally-leaving-the-stable).  and the successful passage of the GENIUS Act.⁶King & Spalding, Stablecoin Legislation Has Left the Stable, July 23, 2025 (available at: https://www.kslaw.com/news-and-insights/stablecoin-legislation-has-left-the-stable). We highlighted the SEC’s desire to increase certainty in how cryptocurrency is regulated when it established its Crypto Task Force in February of 2025.⁷King & Spalding, SEC Creates Crypto Task Force and Pivots Away from Regulation by Enforcement, Feb. 25, 2025 (available at: https://www.kslaw.com/news-and-insights/sec-creates-crypto-task-force-and-pivots-away-from-regulation-by-enforcement). And we analyzed the SEC’s December 2025 statement describing the application of broker-dealer possession and control requirements to crypto-assets.⁸King & Spalding, SEC Clarifies Broker-Dealer Custody Rules for Crypto Assets, Dec. 24, 2025 (available at: https://www.kslaw.com/news-and-insights/sec-clarifies-broker-dealer-custody-rules-for-crypto-assets). But the current leading approach to defining broader crypto market regulation seems to have reached an impasse in the Senate, and the passage of the much anticipated “market structure” legislation is currently uncertain.⁹Jasper Goodman, Senate Faces an Election Year Crypto Crunch, Dec. 19, 2025 (available at: https://www.politico.com/news/2025/12/19/senate-election-year-crypto-crunch-00698676).

The SEC’s Guidance appears to represent the fruits of thinking done at the agency over the past year to outline how securities laws come into play for crypto enterprises doing business in the United States. Without new legislative authority to write new rules, it appears the SEC is announcing its views as formally as it can.

In short, the Guidance establishes the following five categories of crypto assets: 

Not Quite Done with Howey

In a statement issued the same day as the new interpretative guidance, SEC Director of Corporation Finance James Moloney remarked that the Guidance amounted to a “final chapter” for the eighty-year-old case guiding the SEC’s determinations of when crypto activities qualify as securities.¹⁵James Moloney, The Last Chapter in the Book of Howey, Mar. 17, 2026 (available at: https://www.sec.gov/newsroom/speeches-statements/moloney-statement-book-of-howey-031726). In SEC v. W.J. Howey Co., a case involving out-of-state investments in Florida orange groves, the Supreme Court developed the essential test for when a business activity qualifies as an “investment contract,” and thus a “security” subject to registration under Section 5 of the Securities Act of 1933.¹⁶SEC v. W.J. Howey Co., 328 U.S. 293. Though the subject matter has changed dramatically from orange groves to the blockchain, the “Howey test” has been the focal point of the SEC’s approach to crypto markets in recent years.¹⁷The Howey test sets clear benchmarks for identifying an “investment contract”— whether the contract, transaction, or scheme involves: (1) an investment of money (2) in a common enterprise (3) with an expectation of profits derived from the efforts of others.  SEC v. W.J. Howey Co., 328 U.S. 293. Notably, the Guidance expressly supersedes the SEC staff’s 2019 “Framework for ‘Investment Contract’ Analysis of Digital Assets,” which had been the primary analytical tool for crypto securities analysis for nearly seven years. Market participants should update their analyses accordingly.

Despite the messaging about trying to close the book on Howey, the SEC is still careful to note in the Guidance that individual circumstances may mean that a given non-security crypto asset might be part of an “investment contract” and therefore subject to securities laws.¹⁸Securities and Exchange Commission, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Final Rule, Mar. 17, 2026 (available at: https://www.sec.gov/files/rules/interp/2026/33-11412.pdf) pg. 24-25. The SEC cautions that a “non-security crypto asset becomes subject to an investment contract when an issuer offers it by inducing an investment of money in a common enterprise with representations or promises to undertake essential managerial efforts from which a purchaser would reasonably expect to derive profits.”¹⁹Id.  Critically, the Guidance tightens the investment contract analysis by requiring that the issuer have affirmatively made “representations or promises” to undertake essential managerial efforts. The Guidance states that “[a]bsent such representations or promises being conveyed to purchasers, it would not be reasonable for a purchaser to expect profits from the contract, transaction, or scheme.” This is narrower than the traditional Howey formulation, which broadly asked whether purchasers relied on the “efforts of others,” and it effectively raises the threshold for classifying a crypto asset as a security. The Guidance also clarifies that post-sale representations, third-party statements (unless authorized by the issuer), and vague or unactionable statements are unlikely to create an investment contract. The Guidance further confirms that the “common enterprise” element of the Howey test must be satisfied—resolving longstanding ambiguity about whether the SEC viewed commonality as a required element.

Practically speaking, the SEC notes it will assess the manner in which representations or promises are made to a purchaser, the explicitness of the descriptions of managerial efforts to be undertaken by the issuer, and the timing of the statements made by the issuer. Companies and entrepreneurs should continue consulting counsel to ensure that their marketing activities and communications with prospective purchasers do not inadvertently create what the SEC would view as an investment contract.

Perhaps the most consequential aspect of the Guidance is its framework for when a non-security crypto asset that may have originally been part of an investment contract can “separate” from the investment contract and cease to be subject to the federal securities laws.²⁰This topic has been the subject of extensive discussion and occasional Staff guidance.  See, e.g., William Hinman, Digital Asset Transactions: When Howey Met Gary (Plastic), Remarks at the Yahoo Finance All Markets Summit: Crypto (June 14, 2018), https://www.sec.gov/newsroom/speeches-statements/speech-hinman-061418 (noting that “the analysis of whether something is a security is not static”). The Guidance identifies two primary separation triggers: (a) the issuer fulfills and completes its represented or promised essential managerial efforts; and (b) the issuer fails to fulfill, or publicly abandons, those efforts. In either case, the investment contract terminates and the underlying crypto asset is no longer subject to the securities laws, including registration requirements. The SEC emphasizes that issuers should make public disclosures when fulfillment has occurred. This framework has major practical implications: projects that initially sold tokens under investment contracts should evaluate whether separation has already occurred or can occur, and those planning token offerings should (if desired) consider structuring their disclosures with eventual separation in mind.

Importantly, however, separation is prospective only and does not retroactively cure historical securities law violations.  Even after a non-security crypto asset separates from an investment contract, the issuer remains potentially liable for material misstatements or omissions made during the investment contract’s existence and for any failure to register the original offering.

The Guidance also addresses secondary market transactions. Where a non-security crypto asset remains subject to an investment contract, secondary market transactions in that asset are securities transactions requiring registration or an exemption. Once separation occurs, however, secondary market trading is no longer subject to the securities laws. This distinction has significant implications for crypto exchanges and trading platforms, which may be among the biggest beneficiaries of this aspect of the Guidance.

With this revised approach to the investment contract analysis, the SEC’s Guidance details the manner in which the SEC now applies Howey to scenarios involving protocol mining, protocol staking, wrapping, and air dropping. While this is not the first time the SEC has engaged with these scenarios, the Guidance’s attention on these scenarios reflects the SEC’s updated views and interest in developing a comprehensive framework. The Guidance notes that most scenarios involving these activities are not securities transactions under the Howey test, and thus not subject to registration or exemption rules.²¹Securities and Exchange Commission, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Final Rule, Mar. 17, 2026 (available at: https://www.sec.gov/files/rules/interp/2026/33-11412.pdf) pg. 38, 47, 55, and 60.

There are exceptions to this general statement, however, and it is vital that companies and entrepreneurs assess whether their staking, wrapping, or air drop activity involves an investment contract. For example, individuals involved in the process of generating, issuing, and redeeming a Staking Receipt Token that is a receipt for a non-security crypto asset likely do not need to register the transaction with the SEC.²²Securities and Exchange Commission, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Final Rule, Mar. 17, 2026 (available at: https://www.sec.gov/files/rules/interp/2026/33-11412.pdf) pg. 52. Conversely, individuals involved in the process of generating, issuing, and redeeming a Staking Receipt Token that is a receipt for a digital security or non-security crypto asset subject to an investment contract likely do need to register the transaction with the SEC.²³Id. The focus is thus on the nature of the crypto asset underpinning the activity – the actions of staking, wrapping, or air dropping do not transform a non-security into a security, and vice versa.

The Guidance also establishes important boundary conditions: if a custodian decides whether, when, or how much to stake on behalf of a user, or if a liquid staking provider guarantees reward amounts, those activities fall outside the scope of the Guidance and may implicate securities laws. Market participants should carefully evaluate whether their specific staking arrangements satisfy the parameters set forth in the Guidance.

Projecting Potential Next Steps

In a March 17, 2026 address to the Digital Chamber Blockchain Summit on the day the Guidance was published, Chairman Atkins noted that the Commodity Futures Trading Commission (“CFTC”) is joining with the SEC in implementing the new Guidance,²⁴Paul Atkins, Regulation Crypto Assets: A Token Safe Harbor, Mar. 17, 2026 (available at: https://www.sec.gov/newsroom/speeches-statements/atkins-remarks-regulation-crypto-assets-031726). and will administer the Commodity Exchange Act consistently with it. CFTC Chairman Michael S. Selig echoed Chairman Atkins’s sentiments, noting a shared commitment to “fostering a regulatory environment that allows the crypto industry to flourish in the United States with clear and rational rules of the road.”²⁵Press Release, CFTC Joins SEC to Clarify the Application of Federal Securities Laws to Crypto Assets, Mar. 17, 2026 (available at: https://www.cftc.gov/PressRoom/PressReleases/9198-26). The joint approach is designed to provide a more coherent regulatory framework across the two primary federal market regulators.

Chairman Atkins also expressed support for several additional concepts not included in the Guidance itself, in what he referred to as his vision for “Regulation Crypto Assets.” Drawing from the CLARITY Act (H.R. 3633), that set of additional ideas included a startup exemption for crypto developers, a fundraising exemption for crypto entrepreneurs, and an investment contract safe harbor for crypto issuers who complete or permanently cease all essential managerial efforts.²⁶Paul Atkins, Regulation Crypto Assets: A Token Safe Harbor, Mar. 17, 2026 (available at: https://www.sec.gov/newsroom/speeches-statements/atkins-remarks-regulation-crypto-assets-031726). While those concepts will not be implemented along with the interpretive shifts embodied in the Guidance, it is possible they emerge in subsequent SEC rulemaking—especially if additional crypto market structure regulation is passed that provides additional legislative authority for such exemptions and safe harbors.

Key Risks & Opportunities

This continues to be an exciting time for the crypto industry. While more regulation is undoubtedly needed, the SEC’s new Guidance provides companies and entrepreneurs with clearer principles regarding how the SEC plans to approach certain crypto assets and transactions from the perspective of policing U.S. federal securities laws.

As regulators, legislators, and market participants continue pursuing clarity, it is important to keep the following points in mind.

• The new Guidance is nuanced. The SEC is careful to caveat and cabin its analyses to the specific scenarios envisioned in its Guidance. Even when dealing with one of the four classes of crypto assets the Guidance identified as non-securities (digital commodities, digital collectibles, digital tools, and payment stablecoins under the GENIUS Act), it is necessary to assess whether any scenario-specific facts exist that could lead the SEC to nevertheless determine that a contemplated activity is subject to securities laws.
• Issuers will still be scrutinized. The SEC cautions issuers that non-security crypto assets can still become part of an investment contract—subject to securities laws—through issuers’ acts or representations. Entrepreneurs and companies will need to carefully calibrate their outreach to potential consumers to understand whether their actions may lead the SEC to understand their transactions to be subject to securities laws.
• Innovation is being encouraged. Both the Guidance and Chairman Atkins’s remarks make clear that the U.S. Government is attempting to support crypto development. Though still just ideas, Chairman Atkins’s proposals regarding startup and fundraising exemptions provide examples of the support posture the SEC envisions for the future.
• Historical exposure is not erased. Even where a non-security crypto asset has separated from an investment contract under the Guidance’s framework, issuers remain potentially liable for material misstatements or omissions made during the investment contract’s existence and for any failure to register the original offering. The Guidance does not provide a retroactive safe harbor for past conduct.
• The risk landscape is increasingly more defined. With this Guidance, the SEC states its view for the time being regarding what will, and will not, be considered a security. While future regulation is inherently unpredictable—especially with the possibility that a new administration could take a different interpretation—those involved in the crypto space can move forward with increased confidence right now that the SEC is focused on outlining a regulatory environment more specifically tailored to the crypto asset context.

But perhaps the most important point to keep in mind is that actual legislation and formal rulemaking are still to come. This new Guidance is a strong indication of the current SEC Commission’s views, but future leadership could easily announce different views. To quote Chairman Atkins’s speech announcing the new Guidance: “only Congress can ensure that regulation in this area is future-proofed through comprehensive market structure legislation.”