SEC Issues Long-Awaited Token Classification Framework
The new four-factor test moves dozens of existing tokens out of regulatory limbo — and puts others squarely in the security bucket.
The SEC published its long-promised token classification framework, introducing a four-factor test that weighs decentralization, functional utility, fundraising history, and ongoing promoter activity.
Tokens that meet a minimum decentralization threshold and show no active issuer marketing are treated as non-securities. Tokens that fail any single factor remain subject to securities law. The framework is prospective — it does not affect ongoing enforcement actions — but provides a clearer path for new issuances and exchange listings.
Industry response has been mixed. Major exchanges welcomed the clarity and have begun a public reclassification process for their listed assets. Critics argue the decentralization threshold remains too vague to operationalize without case-by-case rulings.