The SEC's Token Taxonomy and Its Implications for Crypto Investment Strategy

The U.S. Securities and Exchange Commission's (SEC) evolving approach to crypto regulation, centered on the Token Taxonomy Act and the Howey Test framework, is reshaping the landscape for investors. By classifying crypto assets into distinct categories-network tokens, digital collectibles, digital tools, and tokenized securities-the SEC aims to clarify regulatory boundaries while fostering innovation. This framework not only determines which tokens fall under securities laws but also creates pathways for certain assets to transition out of securities classification as networks mature. For investors, understanding these dynamics is critical to navigating risk and opportunity in a rapidly shifting market.

A Four-Tier Framework for Clarity

The SEC's proposed taxonomy divides crypto assets into four categories, as noted in a Decrypto briefing:
1. Network Tokens: Tokens tied to decentralized blockchain protocols (e.g., Ethereum, Solana) are generally non-securities if they operate independently of centralized control, according to a Decrypt report.
2. Digital Collectibles: Tokens representing media or internet trends (e.g., meme coins) are excluded from securities regulation, as confirmed in a Fintech & Digital Assets report.
3. Digital Tools: Tokens offering functional utility, such as membership credentials or tickets, are also non-securities, as noted in a Corporate Counsel blog.
4. Tokenized Securities: Digitized versions of traditional securities (e.g., real estate or equity tokens) remain under SEC oversight, as outlined in a Pymnts article.

This framework hinges on the Howey Test, which defines a security as an investment of money in a common enterprise with profits derived from the efforts of others. A token loses securities status when its value becomes tied to decentralized operations rather than centralized management, according to a Coinotag report.

Case Studies: Tokens Transitioning Out of Securities Classification

The SEC's recent no-action letters and rulings provide concrete examples of tokens shedding securities status:

1. DePIN (Decentralized Physical Infrastructure Network): In September 2025, the SEC granted a no-action letter for DePIN token distributions, affirming that programmatic transfers of tokens used to reward network participants (e.g., for providing connectivity) are not securities, as confirmed in the Fintech & Digital Assets report. This marked the first such relief since 2020 and set a precedent for utility-based tokens, as noted in the Corporate Counsel blog.

2. DoubleZero Foundation's 2Z Tokens: The SEC similarly approved the DoubleZero Foundation's token distribution, emphasizing that 2Z tokens function as utility tokens for a decentralized internet infrastructure, not investment vehicles, according to the Corporate Counsel blog.

3. Ethereum and Solana: SEC Chair Paul Atkins explicitly stated that network tokens like Ethereum and Solana are no longer considered securities due to their decentralized nature and lack of reliance on centralized managerial efforts, as reported in the Decrypt report.

These examples highlight a key trend: tokens that decentralize sufficiently and operate through automated smart contracts are increasingly exempt from securities laws. This shift reduces regulatory friction for projects and investors alike.

Implications for Investment Strategy

The SEC's taxonomy has profound implications for crypto investors:

• Reduced Regulatory Risk: Tokens transitioning to non-securities status (e.g., DePIN, Ethereum) face fewer compliance hurdles, making them attractive for institutional adoption, as noted in a CryptoSlate article.
• Focus on Decentralization Metrics: Investors should monitor projects for milestones such as on-chain governance, smart contract automation, and reduced centralized control, which signal a transition out of securities classification, as outlined in a Merkles Science blog.
• Diversification Opportunities: Non-securities tokens (e.g., digital collectibles, network tokens) offer exposure to innovation without the volatility of securities-linked assets, as noted in a Reuters article.

However, caution remains warranted. Tokens with centralized elements or explicit promises of returns (e.g., tokenized real estate) will still face securities regulations, as noted in a Aier article.

Conclusion

The SEC's Token Taxonomy Act represents a pivotal step toward regulatory clarity in crypto. By identifying which tokens may transition out of securities classification-such as DePIN, DoubleZero, and major network tokens-investors can better allocate capital to projects with sustainable, decentralized models. As the framework matures, staying attuned to decentralization metrics and regulatory updates will be essential for navigating this dynamic market.