Regulatory Clarity as the Catalyst: How SEC's 2025 Guidance Unlocks Institutional Investment in Layer 1 Blockchains

The U.S. Securities and Exchange Commission's (SEC) 2025 guidance on digital asset classification has emerged as a pivotal turning point for institutional investors eyeing Layer 1 blockchain ecosystems. By clarifying the boundaries between utility tokens and securities, the SEC has reduced regulatory ambiguity, enabling a more predictable environment for capital allocation. This shift is particularly evident in the case of Sui, a high-performance Layer 1 blockchain that has seen a surge in institutional adoption amid evolving regulatory frameworks.

The SEC's 2025 Guidance: A Framework for Clarity

The SEC's April 2025 guidance redefined the application of the Howey test, emphasizing that tokens are securities only if buyers reasonably expect profits from the efforts of a centralized team. For Layer 1 blockchains like Ethereum (ETH), Solana (SOL), and Sui (SUI), this means their utility tokens—used for transaction fees, staking, or network validation—are less likely to be classified as securities, provided the network operates in a decentralized manner. The three-pronged framework introduced by the SEC further solidified this distinction, focusing on the token's initial sale context, ongoing use, and the issuing team's control.

This clarity has been critical for institutional investors, who previously hesitated to allocate capital to crypto projects due to fear of regulatory overreach. As one industry analyst noted, “The SEC's guidance acts as a 'safe harbor' for projects prioritizing decentralization, allowing institutions to engage with Layer 1s without the shadow of enforcement actions looming over them”.

Sui's Rise: Institutional Adoption and TVL Growth

Sui, a Layer 1 blockchain optimized for scalability and speed, has capitalized on this regulatory clarity. By Q2 2025, Sui's Total Value Locked (TVL) had surged to $1.76 billion, driven by institutional-grade DeFi protocols like Suilend and stablecoin tokenization initiatives. Strategic partnerships with financial infrastructure giants—Grayscale's SUI Trust, Binance's integration of SUI derivatives, and Fireblocks' custody solutions—have further cemented Sui's appeal to institutional capital.

The SEC's October 2025 roundtable on privacy tools and regulatory frameworks also signaled a more collaborative approach, easing concerns about compliance for projects like Sui that balance utility with privacy-preserving features. However, regulatory headwinds remain. The delayed approval of the Canary SUI ETF, for instance, has created short-term volatility, with TVL dipping to $1.5 billion in late 2025 as market sentiment wavered.

The Path Forward: Balancing Innovation and Compliance

While the SEC's guidance has unlocked institutional interest, challenges persist. Tokens with hybrid utility-investment characteristics—such as governance tokens tied to protocol revenue—still face scrutiny. For Sui and similar blockchains, the key to sustained institutional adoption lies in demonstrating robust decentralization and clear utility. As a Messari report highlights, “Sui's TVL rebound to $3.05 billion in mid-2025 was fueled by BTCfi protocols and RWA tokenization, but long-term growth hinges on maintaining regulatory alignment”.

Conclusion: A New Era for Institutional Crypto Investment

The SEC's 2025 guidance has laid the groundwork for a more mature crypto market, where institutional investors can engage with Layer 1 blockchains like Sui with greater confidence. While regulatory uncertainty still lingers—particularly around ETF approvals and privacy tools—the broader trend is clear: clarity attracts capital. For Sui and other Layer 1s, the next phase of growth will depend on their ability to innovate within the bounds of a rapidly evolving regulatory landscape.

Source:
[1] SEC's 2025 guidance: What tokens are (and aren't) securities [https://cointelegraph.com/explained/secs-2025-guidance-what-tokens-are-and-arent-securities]
[2] The Coming of Age of Digital Assets: Key Policy ... [https://businesslawtoday.org/2025/08/the-coming-of-age-of-digital-assets-key-policy-regulatory-and-legal-considerations/]
[3] The SEC Convenes a Crypto Roundtable on October 17, 2025 [https://www.mexc.com/news/the-sec-convenes-a-crypto-roundtable-on-october-17-2025/90161]
[4] State of Sui Q2 2025 [https://messari.io/report/state-of-sui-q2-2025]
[5] SEC Delay on Canary SUI ETF Proposal May Influence ... [https://www.bitget.com/news/detail/12560604797113]
[6] Sui ($SUI) Price Prediction 2025, 2026, 2030 [https://99bitcoins.com/price-predictions/sui/]
[7] LDO and RPL Among Tokens Lifted by New SEC Guidance [https://www.coindesk.com/business/2025/08/06/defi-cheers-as-sec-affirms-liquid-staking-protocols-aren-t-securities]