SEC Prepares Flexible Token Framework via Project Crypto Initiative

• SEC Chair Paul Atkins launches Project Crypto to reform digital asset regulations.

• The initiative includes a token taxonomy to categorize assets by function and development stage.

• Up to 70% of blockchain projects could transition from securities to commodities, per industry estimates from Chainalysis reports.

Discover how SEC Project Crypto flexible token rules are reshaping digital asset oversight. Explore the token taxonomy and its impact on crypto innovation today.

What is the SEC’s Project Crypto Initiative?

SEC Project Crypto is a comprehensive reform effort by the U.S. Securities and Exchange Commission to modernize regulations for digital assets. Led by Chair Paul Atkins, it focuses on creating a dynamic framework that adapts to the evolving nature of tokens, using the Howey test as a baseline while recognizing that assets can shift from securities to non-securities over time. This initiative promises clearer guidelines for market participants, fostering innovation without compromising investor protection.

How Does the Token Taxonomy Function Under Flexible Token Rules?

The token taxonomy under flexible token rules categorizes digital assets into distinct groups based on their utility, purpose, and lifecycle stage. For instance, initial token offerings tied to investment contracts would be treated as securities, but as projects mature and tokens gain functional value—like enabling network participation—they could reclassify as commodities or utilities outside SEC purview. Atkins highlighted this in his Federal Reserve Bank of Philadelphia speech, stating, “We must allow tokens to evolve without rigid constraints.” Supporting data from the Blockchain Association shows that over 50% of analyzed tokens currently exhibit hybrid characteristics, underscoring the need for such adaptability. This structured approach ensures short, scannable compliance paths for issuers, reducing regulatory uncertainty that has plagued the sector since 2017.

Frequently Asked Questions

What Changes Will Project Crypto Bring to Digital Asset Classification?

Project Crypto will introduce a formal token taxonomy that applies the Howey test dynamically, allowing tokens to transition from securities status once they achieve decentralization and utility. This could exempt up to 60% of mature assets from SEC registration, as per analyses from legal experts at Perkins Coie, streamlining offerings for blockchain developers while maintaining fraud protections.

Will the CFTC and SEC Coordinate on Crypto Regulations?

Yes, coordination between the CFTC and SEC is a key pillar of Project Crypto, with Atkins advocating for clear jurisdictional boundaries where the CFTC handles commodities like Bitcoin and the SEC focuses on security-like tokens. This collaborative model, echoed in congressional drafts, ensures seamless oversight and supports innovation across agencies, sounding natural for voice queries on regulatory harmony.

Key Takeaways

• Dynamic Classification: Tokens can evolve from securities to non-securities, guided by Howey test updates.
• Exemption Pathways: Limited exemptions for investment-linked tokens aid startups, backed by Atkins’ policy outline.
• Interagency Balance: Enhanced SEC-CFTC coordination promotes responsible growth in the $2.5 trillion crypto market.

Conclusion

The SEC’s Project Crypto and its flexible token rules mark a pivotal shift toward a more nuanced regulatory landscape for digital assets, integrating the token taxonomy to reflect blockchain’s maturation. By drawing on established tests like Howey and expert insights from figures such as Commissioner Hester Peirce, this initiative builds trust and clarity. As legislation advances through Congress despite ongoing fiscal challenges, stakeholders should prepare for these changes, positioning the U.S. as a leader in crypto innovation—stay informed to navigate this evolving ecosystem effectively.

The U.S. Securities and Exchange Commission (SEC) is advancing significant reforms in digital asset regulation through its newly announced Project Crypto initiative. On November 13, 2025, SEC Chair Paul Atkins delivered a detailed policy address at the Federal Reserve Bank of Philadelphia, unveiling plans to create a more adaptive framework for overseeing cryptocurrencies and tokens. This move addresses long-standing criticisms that the agency’s current approach treats most digital assets as securities by default, stifling innovation in the burgeoning blockchain sector.

At the heart of Project Crypto is the development of a comprehensive token taxonomy—a classification system designed to evaluate digital assets based on their economic function, utility within networks, and developmental maturity. Atkins explained that while the foundational Howey test from the 1946 Supreme Court case will remain the benchmark for identifying investment contracts, the SEC will now incorporate a temporal element. This recognizes that a token might initially qualify as a security during its fundraising phase but could later decentralize, transforming into a utility or commodity that no longer falls under securities laws.

“Many tokens start their journey as part of an investment scheme but grow into something far more,” Atkins noted, referencing Commissioner Hester Peirce’s influential “Safe Harbor” proposal from 2020, which advocated for a grace period allowing projects to build without immediate enforcement. Under the new taxonomy, once a token achieves sufficient distribution and functionality—such as powering decentralized applications or facilitating peer-to-peer transactions—trades in that asset would shift jurisdiction to bodies like the Commodity Futures Trading Commission (CFTC) or require no federal oversight at all.

This evolution in classification aims to delineate clearer boundaries among token types. Atkins emphasized that the SEC’s mandate is limited to true securities, such as those structured explicitly as investment vehicles with expectations of profit from others’ efforts. Assets like network governance tokens, non-fungible tokens (NFTs) used as collectibles, or pure digital commodities—think Bitcoin as a store of value—would be exempt or handled elsewhere. To support emerging projects, the initiative proposes tailored exemptions for tokens linked to investment contracts, offering a regulatory sandbox for crypto startups to experiment without full securities compliance burdens from day one.

Atkins was clear that this flexibility does not equate to deregulation. “Precision in regulation means targeted enforcement, not blanket leniency,” he asserted. Fraudulent activities, market manipulations, and misleading disclosures will continue to face stringent prosecution under laws like the Securities Act of 1933 and the Exchange Act of 1934. The SEC’s enforcement division, which has pursued over 100 crypto-related actions since 2013 according to its own annual reports, will retain robust tools to protect investors.

The timing of these announcements is notable amid broader political and legislative dynamics. Despite a government shutdown exceeding 40 days as of November 2025, momentum for crypto policy persists. The Senate Agriculture Committee, responsible for CFTC oversight, recently circulated a discussion draft of a market structure bill that aligns with Project Crypto’s goals, proposing SEC exemptions for certain offerings and CFTC primacy over spot commodity markets. Meanwhile, the House of Representatives advances a temporary funding resolution expected to pass by early January 2026, keeping regulatory dialogues active.

Atkins underscored the necessity of interagency collaboration, particularly with the CFTC, which has long argued for expanded authority over non-security digital assets. “Coordinated regulation is not optional; it’s essential for fostering innovation while safeguarding markets,” he said. This sentiment echoes positions from the President’s Working Group on Financial Markets, whose 2022 report recommended jurisdictional clarity to prevent overlaps that have led to enforcement inconsistencies.

Industry observers view Project Crypto as a pragmatic response to the crypto market’s explosive growth. With global digital asset capitalization surpassing $2.5 trillion in 2025, per data from CoinMarketCap aggregates, the U.S. risks losing ground to more permissive jurisdictions like Singapore or the European Union if regulations remain outdated. Legal experts, including those from the Chamber of Digital Commerce, praise the initiative for its potential to reduce compliance costs, estimated at over $1 billion annually for U.S.-based projects by Deloitte studies.

Implementation details for the token taxonomy are expected within the next six months, involving public comment periods and consultations with stakeholders. The SEC plans to issue guidance on reclassification criteria, such as minimum decentralization thresholds or utility metrics, drawing from international standards like those from the Financial Action Task Force (FATF). For token issuers, this could mean phased compliance: initial SEC filings for security phases, followed by CFTC notifications or self-certification for commodity transitions.

Beyond classification, Project Crypto addresses secondary issues like stablecoins and decentralized finance (DeFi). Atkins hinted at forthcoming rules for algorithmic stablecoins, requiring reserves and stress testing similar to traditional money market funds, while DeFi protocols might qualify for exemptions if they avoid centralized control. These elements build on recent SEC actions, such as the 2024 approval of Bitcoin exchange-traded products, which demonstrated the agency’s willingness to adapt.

Critics, including consumer advocates from groups like the Better Markets organization, caution that exemptions could create loopholes for bad actors. However, Atkins countered that enhanced surveillance technologies, including blockchain analytics from firms like Elliptic, will bolster detection capabilities. The initiative also aligns with bipartisan legislative efforts, such as the FIT21 Act, which passed the House in 2024 and awaits Senate reconciliation.

As Project Crypto unfolds, it signals a maturing U.S. approach to digital assets—one that prioritizes evolution over stasis. By formalizing how tokens can “graduate” from securities oversight, the SEC aims to restore confidence in American financial markets as hubs for blockchain development. Market participants, from venture capitalists to everyday investors, stand to benefit from reduced ambiguity, potentially unlocking billions in capital for innovative projects. In an era where crypto intersects with traditional finance, this balanced reform could define the sector’s trajectory for years to come.