Figment, a blockchain infrastructure and service provider that focuses on providing digital asset staking solutions to institutional clients, said in a statement yesterday (23) that Hester Peirce, Commissioner of the U.S. Securities and Exchange Commission (SEC) and head of the U.S. Cryptocurrency Task Force, directly addressed the issue of staking in a recent SEC Speaks speech. Figment said that this is the first time that a senior SEC official has explicitly stated that technical participation in proof-of-stake (PoS) and delegated proof-of-stake (DPoS) systems is not necessarily subject to securities law regulations:
The moment is significant: It opens the way for U.S. institutions to participate in staking without fear of enforcement action, in line with industry calls for clear rules.
Hester Peirce's keynote speech
In this speech, Hester Peirce's core point is to support the provision of clear guidance to cryptocurrency practitioners to provide a clear understanding of the jurisdiction of cryptocurrency under U.S. securities laws. She directly mentioned:
I support issuing further guidance to clarify which activities are not regulated by securities laws, such as direct participation in proof-of-stake and delegated proof-of-stake systems, and technical services that assist people in participating in these consensus mechanisms.
Other highlights of the speech include:
- Acknowledge that most crypto assets are not securities under U.S. securities laws. These assets do not promise to generate value through voting or economic power of a centralized entity.
- Acknowledge that the SEC’s past practices have failed to provide clarity for compliant participants and have failed to deter bad actors.
- Shift from punitive enforcement to constructive guidance.
- Meme coins do not meet the definition of securities under current law because they lack economic rights.
- The Cryptocurrency Task Force is pushing for more guidance, rulemaking, and safe harbor provisions.
Why is it important to the United States?
Figment pointed out that the position revealed in this speech has great significance for the United States:
- Technical participation in DPoS (Solana) and PoS (Ethereum) staking is not covered by securities laws. This provides long-awaited clarity for U.S. institutions, ensuring that their participation in staking does not violate securities laws.
- Shift from law enforcement and supervision to clear guidance. Acknowledge that past enforcement approaches have failed to prevent fraudulent activity and have only created confusion for compliant operators. This is the policy shift we expect from the SEC.
- The forward-looking framework includes a safe harbor for early-stage assets, a registration path tailored for token projects, and clearer rules for secondary market activity. In particular, the proposed conditional safe harbor would allow new networks to launch and mature under clear disclosure and investor protection standards. We believe this provides a path for new projects to enter the market in a compliant manner, expanding the scope and quality of networks we can support.
Hester Peirce's speech
Thank you everyone, and welcome to SEC Speaks. Before I begin, I want to remind everyone that my opinions are my own as a Commissioner and do not necessarily reflect the position of the Commission or other Commissioners.
Exactly one month ago, on April 19, 2025, it was the 250th anniversary of the beginning of the American Revolution. At the Battles of Lexington and Concord, Samuel Whittemore, a farmer in his 80s, hid behind a stone wall and killed three British soldiers before, as the monument records, being “shot, bayoneted, beaten and presumed dead.” Miraculously, he lived for nearly another twenty years. The Whitmore family kept a broken-handled teacup until my great uncle donated it to the Historical Society. The teacup was a symbol that Whitmore buried in his backyard in protest of the much-hated Tea Act. This small act of defiance, foreshadowing his larger acts of rebellion, laid the foundation for a nation that uniquely values human freedom, celebrates the spirit of independence, and welcomes dissenting voices.
My voice has been one of these dissenting voices over the past few years. Many of my objections relate to the Commission’s regulatory approach to crypto-assets: an entirely new digitally native asset class and “on-chain” versions of currencies, commodities, collectibles, and securities that are backed by a shared database architecture. Coming off a period of cryptocurrency dissent, I am pleased to present to you today, in my capacity as the head of the Commission’s Cryptocurrency Task Force, a rational and coherent path forward and a new paradigm for the SEC.
I guess some of the audience here are not particularly interested in cryptocurrencies. The SEC's responsibilities are broad, as evidenced by the wide variety of topics on the SEC Speaks agenda. We have important work to do in many areas, such as expanding access to capital, revitalizing public markets, returning to materiality-based disclosure, promoting greater participation of Americans in the capital markets, prudently implementing rules such as Treasury liquidations, simplifying and modernizing the Commission's massive rulebook, rethinking the comprehensive audit trail and gag rules, promoting innovation and competition in asset management, allowing for the use of modern communications, and ensuring continued market resilience.
Cryptocurrency wasn’t the committee’s most important topic, but it was important, even to those who believe anything with the “crypto” label is worthless or worse. First, the SEC’s approach to cryptocurrencies in recent years has circumvented sound regulatory practices and must be corrected. The Commission is relying on enforcement actions to inform how it views the applicability of securities laws to cryptocurrencies in lieu of notice-and-comment rulemaking. It provides little useful guidance on how securities laws apply to cryptocurrency facts and circumstances. Second, while cryptocurrencies have largely remained outside of traditional financial markets to date, change is coming fast as traditional financial intermediaries are developing and participating in crypto assets and market participants are experimenting with the tokenization of traditional securities. Finally, providing clarity on cryptocurrencies will allow the committee to focus on the many other matters on its agenda.
The task force, established by Acting Chairman Uyeda at the beginning of his term and continued by Chairman Atkins, has been operating for about four months now. During this time, we have held four roundtables, with another planned for next month, received over a hundred written comments in response to an extensive call for comment, and conducted over a hundred meetings with industry participants and other members of the public with diverse viewpoints. Commission staff across its divisions have issued new guidance on cryptocurrencies, including on cryptocurrency mining and broker-dealers’ custody of customer cryptocurrency assets. I support issuing further guidance to clarify which activities are not regulated by securities laws, such as direct participation in proof-of-stake and delegated proof-of-stake systems, and technical services that assist people in participating in these consensus mechanisms. The staff also withdrew guidance that would have hindered regulated entities from participating in crypto assets. Additionally, the Task Force, along with staff from across the Committee, provided technical assistance to Congress on its efforts to develop cryptocurrency legislation and worked with other agencies to implement the President’s directives on cryptocurrency.
The hottest topic of discussion in written opinions and at industry conferences is undoubtedly the attributes of securities. My short answer to the question “Are cryptocurrency assets securities?” is that most existing cryptocurrency assets in the current market are not securities. My supplemental response is that the economic realities are important and that non-security crypto assets may be distributed as part of an investment contract, which is a security.
The federal securities laws apply broadly to situations in which a person gives money in exchange for a promise to create value for the person providing the money. The statutory definition of "security" includes a variety of enumerated instruments, such as stocks, bonds, and notes, which all share a key characteristic. They are all "instruments that fall within the ordinary concept of securities in our business world." Securities generally represent rights or interests in a business entity or other promisee. For example, common stock represents certain voting and economic rights of the business entity that issues the stock, while a note represents the right to receive payment from the promisor. The intrinsic value of these instruments depends on the financial prospects of the underlying business entity or promisor. The drafters of the federal securities laws did not intend the term “security” to include instruments that do not represent economic rights or interests typical of ordinary securities. Thus, although the federal securities laws’ definition of a security is broadly applied, certain financial instruments are not within their scope, including some instruments sold by scammers. Financial instruments that are outside the scope of the Commission may fall under the jurisdiction of other regulators.
Even as the SEC and the courts have for decades followed congressional directives to determine which of the many financial transactions in our society are covered by regulation, the lines between transactions covered by the securities laws and those not covered remain blurred. The Supreme Court held that in assessing whether an instrument falls within the securities regime, the “substance” of the instrument is more important than its “form”. Instruments that are called "shares" but do not convey typical security rights are not necessarily covered by the federal securities laws. Likewise, instruments that are marketed as commodities but convey typical security rights will be regulated as securities. Consideration of “economic realities” is not necessary for “traditional stocks, which clearly fall within the statutory definition,” but is necessary for “unconventional instruments that are not easily characterized as securities.”
The Supreme Court acknowledged that this “approach based on economic realities rather than hard and fast rules” could lead to confusion in certain situations about whether securities laws apply. However, this approach gives "the SEC and the courts sufficient flexibility to ensure that those marketing investments cannot evade application of the securities laws by creating new vehicles that are not covered by the more certain definitions." The court suggested that Congress may have "overweighted the goal of avoiding manipulation by clever but dishonest actors at the expense of the goal of clarity."
The Supreme Court’s recognition of ambiguity is consistent with the cryptocurrency industry’s confusion on the issue and highlights why the Commission should fulfill its responsibility to provide clarity on the securities nature of cryptocurrency asset offerings. The confusion runs so deep that many cryptocurrency entrepreneurs have left the United States or excluded the American public from their projects. Yes, the Commission issued the DAO Report in 2017, which “confirmed that issuers of securities based on distributed ledger or blockchain technology must register offers and sales of such securities unless a valid exemption applies.” But the facts in The DAO Report differ from those in many other cryptocurrency asset offerings. Yes, the Commission staff did issue guidance, but that guidance was so complex that no one could follow it. I support the staff in withdrawing this guidance so that no one is still considering spending attorney fees to interpret it. Moreover, the Commission has brought numerous enforcement actions against crypto-asset issuers and crypto-intermediaries following the DAO Report, but many of these actions were premised on violations of registration requirements that were not feasible for the types of activities at issue.
The Commission has closed or dismissed many of these cases to give our policy departments the space to develop a reasonable path forward. The Commission’s approach to cryptocurrency is not working; it neither stops many of the worst cryptocurrency actors nor provides clarity for good actors. The responsibility lies with the committee, not the hard-working staff who are doing their best under the committee’s direction. The Commission, consistent with its investor protection mission, will continue to aggressively pursue securities fraud, including cases involving cryptocurrency, but the Commission’s statutory authority does not cover all types of fraud and scams.
The Committee has now begun the work of providing clarity, albeit much later. This work is guided by the recognition that whether something is on-chain does not change the substance of the analysis of its security attributes. Staff has begun providing guidance, and as Chairman Atkins mentioned at the tokenization roundtable, we are moving quickly to codify our thinking through notice-and-comment rulemaking.
The tokenization of real-world assets is still in its infancy, so most crypto assets in existence today are not instruments enumerated in the definition of securities. Common crypto assets include payment methods, stores of value, access to computing power, artwork, rewards points, video game items, tickets, memberships, and memes. Commission staff recently clarified that it believes certain memecoins and stablecoins are not securities because they do not convey economic rights in a commercial entity or other promisee. They are blockchain versions of things that exist in the real world. Memecoins are digitally native collectibles whose value is derived from an associated meme or pop culture reference. A stablecoin is a digitally native payment instrument designed to maintain a stable value, similar to an open gift card. It could be helpful to permanently exclude crypto assets that meet certain enumerated criteria, such as collectibles or stablecoins, from the definition of “securities.” Crypto assets that do not have external control or dependency characteristics may also be excluded.
Other non-security crypto assets give their holders technological rights to a functional, decentralized, public, and permissionless blockchain network or application. Users must own the protocol’s native cryptocurrency asset in order to interact with the protocol’s functions and features. Users freely choose to participate in these protocols and abide by their rules, typically in exchange for rewards in crypto assets that are programmatically generated by the network or application’s use. Developers are compensated in the form of crypto assets and are expected to develop for networks and applications with an active user base, as high demand for crypto assets is reflected in the price of crypto assets in the secondary market. An economic mechanism rewards voluntary cooperation and coordination among distributed participants. This creates a flywheel effect, encouraging users to participate in the protocol based on the design of economic mechanisms, and developers to build networks and applications that successfully attract users. There is no central party overseeing participation or distributing rewards to participants. Therefore, the value of these crypto assets is inherently tied to the programmed functionality of the associated network or application, rather than to any commercial entity or promiseeer.
Many non-fungible tokens (NFTs) are also not securities, including NFTs that are designed to compensate their creators over time. These NFTs are powered by smart contracts and can be programmed to automatically transfer a portion of the sale price to the artwork creator as royalties every time the NFT is resold. Just as streaming platforms pay creators royalties every time a user plays a song or video, NFTs enable artists to benefit from the increased value of their work after the initial sale. The “creator royalty” feature of certain NFTs does not provide the NFT owner with any rights or interests in a commercial enterprise, or “the types of profits traditionally associated with securities.”
Cryptocurrency assets that do not represent an economic right or interest in a business entity or other promisee (including an ownership or debt interest, a share of revenue, or any right to interest or dividend payments) and are intended solely for use or consumption should not be subject to the federal securities laws. Even if the buyer expects the cryptocurrency asset to rise in value in the future, the analysis does not change.
The more difficult question of security attributes arises when non-security crypto assets are distributed early in the development of the associated network or application, when the asset is not yet functional and the network or application is still controlled by a central party. A common practice today is for software development companies, foundations, or related entities (which I will refer to collectively as “issuers” for simplicity) to distribute crypto assets with promises of future functionality and decentralization before the crypto assets are functional and the associated network or application is controlled by a central party. Issuers make these commitments directly to purchasers (usually venture capital funds or other institutional investors) or indirectly through public communications. Efforts related to commitment are "undeniably important, critical management efforts that affect the success or failure of an enterprise." These promises shape the expectations of buyers; buyers are not buying a functional crypto-asset, but rather a crypto-asset together with the issuer’s promise to make it functional. This commitment is the “thread that strings everyone’s beads together” through these purchases. If the issuer disappears and stops performing key management efforts, everyone’s beads will fall to the ground because the value of the crypto asset is intrinsically tied to the efforts of the pledgers.
These transactions are beginning to look a lot like other transactions that courts have deemed regulated by securities laws. Because cryptocurrency assets are sold in conjunction with a promise to develop a network or application and deliver functionality, these cryptocurrency assets may be subject to a contract, transaction, or plan that constitutes an investment agreement, which is a security under the federal securities laws. The Supreme Court in SEC v. WJ Howey Co. defined an investment contract as "a contract, transaction, or scheme whereby a person invests his or her money in a common enterprise with the expectation of receiving profits solely from the efforts of the promoter or a third party." The Supreme Court intended to capture “unusual and irregular instruments” that have “fundamental properties that permeate all of the Court’s decisions defining securities.” As the Court explained in Forman, “the key is the existence of an investment in a common enterprise based on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” Subsequent courts have elaborated on the definition, and the wide diversity of judicial interpretations has created significant uncertainty for cryptocurrency market participants and beyond. Further clarity from Congress on the scope of “investment contracts” could help the cryptocurrency market and beyond.
The biggest challenge for cryptocurrency market participants, including issuers, cryptocurrency trading venues, and early adopters, is determining when non-security cryptocurrency assets are separated from investment instruments. Some commentators have argued that it immediately separates and that subsequent sales of crypto assets are not subject to the investor protections of the federal securities laws. Others believe that investment contracts exist with the crypto asset until the underlying network or application is sufficiently decentralized and no longer controlled by a central party, or the issuer has fulfilled its promises to the purchaser of the investment contract.
Distinguishing crypto assets from investment contracts allows the assets to be traded freely outside of securities laws. This decoupling promotes the flywheel effect I discussed earlier, where a broad range of buyers can easily purchase crypto assets for use in a network or application, and developers who are compensated in crypto assets can easily sell them. However, treating all secondary sales of crypto assets as unregulated by investment contracts runs the risk of facilitating bad behavior: dumping crypto assets purchased as part of investment contracts on retail investors, while the crypto assets lack functionality and their associated networks or applications are still controlled by a central party (and therefore subject to information asymmetry issues). If the initial holders exit by selling their crypto assets, the investment covenant cannot be enforced and the issuer can also dump its crypto assets and walk away, rich and without the responsibility of completing the project. Companies considering capital raising options may even be tempted to use such crypto asset sales instead of other methods of capital raising: promising to build a network or functional product, conducting a crypto asset pre-sale to venture capitalists, stopping development of the network or product once sold to retail investors, and investing the proceeds from the initial crypto asset sale into their actual business.
Market participants can address this problem without the need for a government solution. For example, an issuer could set a lock-up period for its own and initial purchasers’ cryptocurrency assets to demonstrate good faith to purchasers. Additionally or alternatively, they can embed specific performance delivery and enforcement mechanisms into crypto assets via smart contracts. The investment contract will intentionally exist with the crypto asset until terminated through performance of the specified delivery.
While such market-driven solutions could reduce the need for government intervention, the task force is considering how to establish clear rules for trading crypto assets. While we await legislation and the courts’ continued opinion on these issues, the Commission could provide a tailored registration regime for securities offerings involving crypto-assets, as well as a “safe harbor” that provides appropriate conditions for crypto-asset transactions that may be subject to investment contracts. A time-limited conditional safe harbor would allow crypto assets subject to investment covenants to trade for a period of time without being subject to securities registration requirements, provided that the issuer meets certain disclosure and investor protection requirements. Such a safe harbor would provide issuers with time to gradually deliver the functionality of a crypto-asset or decentralized network or application while providing investors with important information about the crypto-asset, the issuer, and the key management efforts it is committed to. Another option would be to regulate the issuance and sale of pre-functionalized and pre-decentralized crypto assets by issuers, their affiliates, underwriters, and major holders as securities transactions, but exempt subsequent sales of those crypto assets in the secondary market. Additionally, the Commission may establish an exemption framework so that certain distributions of crypto assets as part of an “airdrop” are not considered “offers” or “sales” requiring registration.
The Commission acknowledges that some courts have held that secondary sales of crypto assets are securities transactions and could provide clarity as to when the link between an investment deed and a crypto asset is severed, rather than leaving it entirely to the courts’ ex post facto assessment. Implementing crypto-asset functionality (as described in public statements by issuers) could be a way to break the connection. Another way could be that control of a network or application becomes decentralized, to the point where issuers no longer provide critical management efforts and the information asymmetries that Congress contemplated when writing securities laws no longer exist. If the network or application continues to operate after the issuer disappears, it is difficult to conclude that the issuer is providing critical management efforts. Some issuers may seek to decentralize a network or application too quickly, to the detriment of the project’s long-term success, but issuers that commit to a gradual decentralization roadmap designed to mitigate the risk of disclosed vulnerabilities, bugs, and governance failures are more likely to attract investors. From a practical perspective, investment covenants may also terminate if the issuer publicly discloses that it is no longer engaged in key management efforts. In this case, it is unreasonable for subsequent purchasers to reasonably expect profits based on the issuer's key management efforts; however, given that failure to honor promises to security purchasers is an egregious conduct targeted by the securities laws, the issuer may be liable to early investment contract purchasers. Upon closing or termination of the investment agreement, the cryptocurrency assets will no longer be associated with securities.
Regardless of how the SEC ultimately draws the line, even though a large number of crypto assets traded in secondary markets today were originally issued and sold as part of investment contracts, they are clearly no longer being bought and sold as securities. Many of these crypto assets already have functionality. For other assets, purchasers no longer reasonably expect any business entity or other promisee to perform key management efforts with respect to the cryptocurrency asset. In other words, the value of a crypto-asset is intrinsically tied to something other than the rights or interests of a business entity or other promisee. These assets are not securities in themselves, and even if they were once part of an investment contract, they no longer are.
The Commission’s upcoming rulemaking and congressional legislation should continue to provide clarity on which crypto assets are securities. But as discussions at last week’s tokenization roundtable highlighted, many crypto assets may clearly fall within the definition of “securities”; traditional securities in tokenized form are still securities. Other market developments I anticipate include interest in trading tokenized securities versus non-security crypto assets. Federal securities laws or regulations do not currently restrict broker-dealers with alternative trading systems from offering trading in both non-securities and securities, but further clarification on this topic by Commission staff may be helpful to market participants. Additional authority from Congress to regulate both sides of these pairings might also help. I don’t know whether blockchain will revolutionize the way our securities markets operate as some have suggested, but we are prepared to work with the public, as we have in the past, to integrate new technologies into our markets.
Two hundred and fifty years after Samuel Whitmore stood behind Stonewall, I stand here today to thank him for the freedom he fought for. I hope we can all look up from the minutiae of securities law for a moment to celebrate the 250-year milestone of fighting for freedom. Even the seemingly esoteric securities market regulation project we're working on together in this room contributes to the strength of our country and the freedom of our people to pursue their dreams. Thank you to all of you who are SEC employees, have been SEC employees, hope to join the SEC staff in the future, or are content to serve in the private sector. Your voice is critical to ensuring the SEC does its job well so that this great nation's capital markets continue to thrive.
