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Is Crypto a Security — Part IV
The opinion editorial below was written by Alex Forehand and Michael Handelsman for Kelman.Law.
Digital-asset activity has evolved far beyond simple token sales. Today, many of the most consequential legal questions arise not from standalone issuances, but from programmatic mechanisms—staking arrangements, liquidity pools, lending protocols, airdrop campaigns, and NFT ecosystems. These structures often challenge traditional securities analysis because value is generated through a mix of code, incentives, governance, and user participation.
Courts still apply Howey, but these contexts require a more granular and ecosystem-specific analysis. This Part examines how regulators and courts are likely to evaluate four major categories: staking programs, DeFi liquidity and lending, airdrop distributions, and NFTs.
Staking Programs
Staking occupies a unique position because it exists in both protocol-level and service-level forms, each of which raises different security considerations.
Centralized staking programs—where an intermediary pools assets, performs validation, sets reward terms, and markets yield—frequently implicate securities laws. The logic is straightforward: users contribute tokens, rely on the provider to generate returns, and expect profits derived from the provider’s managerial or technical efforts. This fits cleanly within Howey, especially where the provider advertises reward rates or characterizes staking as an “investment opportunity.” For more information, see our article Implications of SEC’s Crypto Staking Scrutiny for Providers.
However, when an intermediary performs only administrative or ministerial roles, does not retain discretion, and does not guarantee yield, the “efforts of others” and “expectation of profits” prongs of Howey are unsatisfied and the staking service is less likely to be a security.
Similarly, network-level staking—where a user stakes directly to a protocol or validator set without pooled management—is far less likely to be a securities transaction. Rewards are typically algorithmic, protocol-defined, and not contingent on an intermediary’s discretion. In this case, the SEC typically views these staking transactions as receipts, rather than securities. For more information, see our article Understanding the SEC’s August 2025 Update Regarding Crypto Staking.
DeFi Liquidity Pools and Tokenized Lending
DeFi protocols introduce another layer of complexity because value emerges from smart-contract interactions rather than a single issuer. Regulators analyzing DeFi structures focus heavily on control, discretion, and expectations of profit.
When users deposit assets into liquidity pools and receive LP tokens in return, the question becomes whether those LP tokens represent a profit-seeking arrangement tied to someone else’s efforts. Courts and regulators examine whether the pool is run by a meaningfully decentralized protocol or whether identifiable developers still retain admin keys, upgrade authority, or influence over core economic parameters.
The source of yield is equally important. Algorithmic yields—driven by automated market-making or lending parameters—lean against securities classifications. But when developers or operators exercise discretion over APY, liquidity incentives, or risk parameters, or when yields are marketed as “returns,” the securities analysis becomes more aggressive.
Also read: Is Crypto a Security? Part III: Secondary Market Transactions
Airdrops
Airdrops have long been informally treated as “safe” because they are distributed for free. But courts and regulators have made clear that free does not mean “not a security.” What matters is whether the airdrop forms part of a broader promotional or investment scheme.
Even Uniswap, once considered the “gold standard” in token distributions for its unadvertised airdrop, received a Wells Notice from the SEC alleging securities violations.
Airdrops may constitute investment contracts when issuers use them to build speculative momentum, to bootstrap trading activity, or to attract speculative interest around a token launch. If promotional materials encourage recipients to expect the token’s price to appreciate, the distribution may satisfy Howey’s profit-expectation prong.
Tasks required to receive the airdrop—such as promotional posting, referrals, or social-media amplification—also raise concerns, because they resemble “work-for-token” marketing campaigns that the SEC views as integrated into a broader distribution scheme. Even retroactive airdrops to protocol users can raise issues if they are framed as a reward for participation in a project expected to grow due to ongoing managerial efforts.
The bottom line: an airdrop can be free and yet still constitute part of a securities transaction when viewed holistically.
Non-Fungible Tokens (NFTs)
Most NFTs, as unique digital objects used for art, collectibles, or membership access, are not securities. Their value typically turns on cultural relevance, artistic quality, scarcity, or personal consumption. But NFTs can cross into securities territory depending on how they are structured and promoted.
Fractionalized NFTs frequently resemble investment vehicles because purchasers receive proportional interests in an asset with potential for appreciation. Similarly, projects that promise royalties, yield distributions, buybacks, or profit participation expose themselves to classic Howey analysis. If NFT creators emphasize “floor price growth,” roadmap execution, a future metaverse, or team-driven appreciation, courts may find a reasonable expectation of profit tied to the artists’ or developers’ efforts.
Conversely, NFTs designed for practical utility—membership passes, in-game assets, digital identity, or event access—tend to fall safely outside securities treatment, especially when sold at a fixed price, used immediately, and marketed around consumption rather than investment.
As with all frameworks, courts focus on economic reality, not the terminology. The same NFT collection could be a security or not depending on how it is marketed, what rights it conveys, and how much value purchasers reasonably attribute to the builders’ ongoing managerial work.
Conclusion
Special contexts like staking, DeFi, airdrops, and NFTs illustrate a recurring theme: the technology does not determine the legal outcome—economic reality does. Courts evaluate whether participants rely on identifiable managerial efforts, whether profits are expected, whether the underlying system is truly decentralized, and whether discretion or control remains with the team behind the protocol.
These contexts do not get special treatment under securities law. They simply require more careful, fact-intensive application of Howey to new economic structures. As these ecosystems continue to evolve in 2025, the line between commodity-like use and investment-like structure remains one of the most important—and most contentious—areas of crypto law.
At Kelman PLLC, we have extensive experience navigating the practical nuances of securities laws, and Howey in particular. We continue to monitor developments in crypto regulation and are available to advise clients navigating this evolving legal landscape. For more information or to schedule a consultation, please contact us here.
