Six crypto firms urge SEC to formalize digital commodity classification

Original | Odaily Planet Daily (@OdailyChina)

Author | Asher (@Asher_0210)

On October 20, Chainlink Labs, Cardano Foundation, Hedera, Aptos Labs, Ava Labs, and Stellar Development Foundation jointly submitted comments to the U.S. Securities and Exchange Commission (SEC), requesting that the definition of "digital commodities" and their non-security status be explicitly included in the body of the proposed Cryptocurrency Regulatory Rules.

Notably, the six institutions mentioned above are associated with tokens LINK, ADA, HBAR, APT, AVAX, and XLM, which the SEC classified as digital commodities in its interpretive release this March. Given this existing classification, why are these six institutions still jointly requesting rule changes?

On March 17 of this year, the U.S. SEC issued a regulatory interpretation of crypto assets, classifying digital commodities as one of five categories of crypto assets and listing BTC, ETH, and six tokens corresponding to the signatory institutions. According to this document, the value of digital commodities primarily stems from network operations and market supply and demand, rather than expectations of profit derived from key managerial efforts by the project team.

On August 18, the U.S. SEC further proposed the "Regulatory Framework for Crypto Assets," aiming to establish a dedicated issuance system for certain investment contracts involving crypto assets, including arrangements such as registration exemptions. The proposal seeks to clarify the rules that crypto projects must follow when raising funds through transactions governed by securities laws. However, the definition of digital commodities and their non-security status appear only in introductory or explanatory sections of the proposal and have not yet been formally incorporated into the regulatory text.

The introduction explains the background and rationale behind the regulators' rulemaking, while the formal provisions directly specify the scope of application and specific requirements. The six institutions hope that the definition of digital commodities and their non-security status will be incorporated into the formal provisions.

This requirement concerns the stability of existing classifications. Under the U.S. Administrative Procedure Act, substantive rules generally require notice and public comment procedures, whereas interpretive rules typically do not face the same procedural requirements. Classifying digital commodities into formal rules helps raise the procedural threshold for future adjustments to related regulations, reducing market concerns about changes in regulatory stance.

For development teams, trading platforms, and ecosystem service providers, a more stable classification helps reduce regulatory uncertainty over the long term. While inclusion in the main text cannot eliminate future revisions or legal challenges, it provides existing classifications with clearer rule-based foundations.

Another core demand from the six institutions is that the U.S. SEC clearly distinguish between the tokens themselves and the investment contracts formed around them. Even if digital goods were sold as part of an investment contract, this should not automatically classify the tokens themselves as securities. For example, a project may sell tokens early on to raise development funds and promise to generate returns for buyers through team building—such an arrangement may constitute an investment contract. However, whether token trades between third parties still constitute an investment contract after the relevant promises have been fulfilled or are no longer valid should be assessed separately.

To address this issue, the six institutions recommend that, in principle, secondary market transactions among third parties should not be deemed investment contracts when the issuer’s commitments regarding key managerial efforts are no longer effective. This concerns whether the legal relationships formed during early token financing continue to affect subsequent market transactions. Additionally, the six institutions propose that token transactions should not be considered investment contracts solely because the project has not adopted the compliance safeguards outlined in the proposal. Whether a transaction constitutes an investment contract should still be determined based on the specific terms of the transaction.

Staking activities also require clear criteria for evaluation. Even if the underlying tokens are digital commodities, whether the staking arrangements offered by service providers fall under securities law must be analyzed in light of their responsibilities and yield commitments. Six institutions therefore request the U.S. SEC to further clarify the applicable rules for such activities.

In its September staff FAQ, the U.S. SEC provided additional guidance on issues such as staking receipts, but these guidelines are not legally binding. For the market, after asset classification, the key remaining questions are which transactions and services are subject to securities laws, and under what conditions such constraints may be lifted.

The six institutions' demand for regulatory stability is also tied to the progress of legislation on the structure of the U.S. crypto market. In the absence of a comprehensive regulatory framework passed by Congress, how the U.S. SEC formulates rules will directly impact the degree of legal certainty the industry can achieve in the near term.

On September 15, the Senate voted on a procedural motion to advance the CLARITY Act, resulting in 49 votes in favor and 50 against, failing to reach the required 60-vote threshold and blocking the bill’s progress. International law firm DLA Piper analyzed that, given the remaining time in this congressional session and other legislative priorities, the likelihood of the bill being enacted this year has significantly decreased. If the bill does not pass before the end of this Congress, it will typically need to be reintroduced and advanced again in the new Congress in 2027.

Amid stalled legislative progress, the final text of the Crypto Asset Regulatory Rules is even more critical. For the six institutions and their ecosystem participants, encouraging the U.S. SEC to incorporate existing classifications into formal regulations is a practical step to reduce current regulatory uncertainty while awaiting legislative progress.

The requirements of the six institutions are not entirely at odds with the current regulatory direction of the U.S. SEC. In March of this year, U.S. SEC Chair Paul Atkins, in issuing a classification guidance, stated that most crypto assets are not securities in themselves and that investment contract relationships can be terminated. He also characterized this guidance as an interim measure during Congress’s efforts to advance legislation on market structure. The six institutions are now seeking to provide more stable regulatory grounding for this stance.

However, acknowledging the classification direction does not mean the U.S. SEC has agreed to include it in formal regulations. To date, the amendment proposals put forward by the joint letter remain unanswered. Especially after legislative efforts in Congress stalled, how much clarity the U.S. SEC is willing to define through its own rules will be key to determining whether the six agencies’ demands can be realized.

There remains disagreement among various parties on how the U.S. SEC should proceed with this proposal. Bitwise and the Hyperliquid Policy Center seek greater clarity on token classification, expanded compliance protections, and clearer rules regarding airdrops and token buybacks. These concerns align with the demands of six other institutions, all of which urge the U.S. SEC to shift regulation toward more specific, reliable standards. Former U.S. SEC enforcement official John Reed Stark and Duke University scholar Lee Reiners, however, call for the proposal to be withdrawn, arguing that it exceeds the U.S. SEC’s authority and undermines investor protection.

Incorporating the definitions into the main text can enhance the stability of classification, but the rules must still be grounded within the statutory authority of the U.S. SEC. The above objections address the entire set of proposals rather than specifically targeting the six institutions, yet they indicate that even if these demands are adopted, the final rules may still face legal challenges. The long-term certainty sought by the six institutions depends not only on how the U.S. SEC drafts the provisions, but also on whether these provisions can withstand subsequent judicial review.