Law and Ledger is a news segment focusing on crypto legal news, brought to you by Kelman Law – A law firm focused on digital asset commerce.
The following opinion editorial was written by Alex Forehand and Michael Handelsman for Kelman.Law.
SEC’s Approach to Digital Assets: Key Insights from Paul Atkins
In Paul Atkins’ latest speech titled “The Securities and Exchange Commission’s Approach to Digital Assets: Inside Project Crypto,” the SEC Commissioner continued to signal a long-awaited change in regulatory posture toward digital assets. Atkins’ remarks suggest a shift away from the SEC’s old, enforcement-driven approach toward one that welcomes innovation, while ensuring market integrity and investor protection remains a forefront concern.
For far too long, crypto entrepreneurs and investors alike have struggled to operate in a regulatory “fog,” as Atkins puts it. In particular, those in the space have attempted, with apparently varying degrees of success, to decipher the lingering question of when a token constitutes a security. Atkins’ address offers the clearest signal yet that the SEC recognizes crypto’s legitimacy within U.S. financial markets and is aiming to integrate, rather than isolate, digital assets.
Token Taxonomy
Commissioner Atkins outlined a practical taxonomy for digital assets, dividing them into categories that reflect their function and purpose rather than applying a one-size-fits-all test.
According to Atkins, “digital commodities” and “network tokens” are not considered securities when they “are intrinsically linked to and derive their value from a programmatic operation of a crypto system that is ‘functional’ and ‘decentralized,’ rather than from the expectation of profits arising from the essential managerial efforts of others.”
He noted that “digital collectibles”— tokens tied to art, music, videos, or in-game items—are not securities, since purchasers are not relying on managerial efforts for profit. These tokens are designed for use or enjoyment, not investment, and represent creative or cultural value rather than financial interest.
Similarly, “digital tools” are not securities when their primary purpose is functional—serving as memberships, tickets, credentials, or identity badges. These assets provide access or verification, not speculation.
However, Atkins was clear that “tokenized securities” remain securities under existing law. These are crypto assets that directly represent ownership of traditional financial instruments—such as equity, debt, or derivatives—that are merely recorded on a blockchain. For more information on tokenized securities, see our article Are Tokenized Securities Still Securities.
Atkins’ framework moves the conversation toward a more nuanced understanding of digital assets: one that distinguishes between innovation in technology and investment contracts, rather than conflating the two.
When Does a Token Stop Being a Security?
One of the most promising parts of Atkins’ speech concerns the idea that a crypto token can evolve over time. Echoing Commissioner Hester Pierce’s speech, titled “New Paradigm: Remarks at SEC Speaks,” Atkins observed that while the sale of a token may initially involve an investment contract, those conditions “may not remain forever.” He explained:
“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 view reflects a growing acceptance within the SEC that tokens—and the networks they power—are dynamic. A token may begin its life as part of an investment contract, but eventually become a non-security once the issuer’s promises are fulfilled and the network operates independently.
Commissioner Atkins revisited the origins of the Howey Test through a vivid Florida analogy. He reminded listeners that the land underlying the original Howey citrus groves was never a security—it only became part of an investment contract through a specific business arrangement, and it ceased to be one when that arrangement ended.
A century later, that same land hosts homes, golf courses, and resorts — a transformation that underscores his point: the underlying asset itself didn’t change, but the enterprise built around it did. Applying this to crypto, Atkins argued that digital tokens may likewise begin life as part of an investment contract, yet evolve beyond it once the promises are fulfilled and the issuer’s managerial role fades.
This formulation is compelling—it acknowledges the dynamic nature of tokens and networks, rather than treating security status as permanent. Still, Atkins left open important questions.
For example, what does “functional” mean in the context of a network’s independence? When is a network adequately “functional” such that token-holders are no longer relying on the issuer’s managerial efforts?
Relatedly, what thresholds of “decentralization” (e.g., participants, nodes, governance mechanisms, token-holder voting) suffice to remove reliance on the managerial efforts of the issuer? To what extent must “control disperse[]?” Does the issuer’s role merely need to “diminish” (notwithstanding the inherent ambiguity in that alone), or does it need to “disappear[]” completely?
This ambiguity invites continued discussion, and the SEC has signalled its openness to industry feedback in shaping how those terms will be defined, including at what “point” a token ceases to be a security.
What It Means for the Crypto Industry
For token issuers and developers, Atkins’ remarks offer both optimism and direction. The SEC appears willing to distinguish between investment activity and network utility—a critical nuance that could allow projects to evolve legally as they do technologically.
In practical terms, issuers and developers should document how and when their role diminishes as networks mature. Platforms and custodians should prepare for a dual-regime world where some assets are securities, and others are not. And investors should continue to monitor forthcoming rulemakings from both Congress and the SEC’s Project Crypto team, which is expected to provide additional clarity on token taxonomy and investor protections.
A Constructive Path Forward
Commissioner Atkins’ tone was one of balance and optimism: regulation as a guidepost, not a hammer. His call for fair, clear, and functional oversight continues to mark a meaningful evolution in the SEC’s engagement with digital assets. For an overview of the SEC’s Project Crypto, see our article Project Crypto: A New Era in U.S. Financial Regulation.
While questions remain about what qualifies as sufficient “decentralization,” or a “functional” network, the spirit of the message is clear—the SEC is ready to work with the crypto industry, not against it.
At Kelman PLLC, we welcome this constructive approach and encourage clients in the digital-asset space to stay closely tuned to forthcoming guidance from Project Crypto and the Crypto Task Force. We continue to monitor developments in crypto regulation across jurisdictions and are available to advise clients navigating these evolving legal landscapes. For more information or to schedule a consultation, please contact us here.
