Quick Breakdown:
- The SEC faces a defining choice: treat network tokens as commodities or securities.
- Bitcoin and Ether lean commodity-like, but many tokens blur the line.
- Misclassification risks choking U.S. innovation and driving talent offshore.
- DeFi’s future hangs in the balance. Clarity could either empower growth or institutionalize the sector.
- Regulators must strike a balance: protecting investors without crushing open blockchain ecosystems.
Are Network Tokens Commodities or Securities? Breaking Down the SEC’s Next Big Decision
The SEC’s classification of network tokens has become one of the most consequential regulatory questions in the digital asset industry. The question is whether these tokens function as commodities, akin to oil or as securities, subjecting them to a complex web of disclosure, registration, and compliance rules.
The dividing line has traditionally been the Howey Test, which considers whether an asset involves an investment of money in a common enterprise with the expectation of profit derived from others’ efforts. Bitcoin has long been treated as a commodity by the Commodity Futures Trading Commission (CFTC), while Ether, after years of uncertainty, is increasingly considered commodity-like as well. But the grey area deepens for governance tokens, liquid staking tokens, or hybrid tokens tied to fundraising, many of which still show signs of centralization or profit expectations. This uncertainty creates both opportunities and risks.
Comparison Table: Commodities vs. Securities
Could Misclassification of Tokens Cripple U.S. Innovation?
At the heart of the regulatory debate lies a pressing question: could misclassifying network tokens as securities cripple U.S. innovation? Many in the crypto industry, from protocol developers to major market makers like Wintermute, argue that these tokens are not securities at all but vital infrastructure. In their view, network tokens are the lifeblood of decentralized systems, fueling transaction validation, securing consensus, and enabling governance; functions far removed from promises of financial gain.
Wintermute has even gone so far as to formally petition the SEC, warning that applying a blanket securities label would impose heavy burdens such as registration, disclosure requirements, and reliance on intermediaries for trading. Such measures, they contend, would not only stifle liquidity but also risk driving innovation and capital away from the country.
Recent legal history offers some support for this argument. The SEC’s April 2025 stablecoin guidance, for instance, carved out fully reserved, dollar-backed stablecoins from securities classification under both the Howey and Reves tests. That decision signalled regulatory recognition that certain tokens may function as financial instruments with unique characteristics, not as blanket securities.
Yet, critics remain unconvinced. Regulators and legal scholars alike have cautioned that decentralization alone is not a sufficient defence. SEC Chair Gary Gensler has been especially vocal, insisting that
“the vast majority of crypto tokens meet the investment contract test. … These tokens have teams promoting them with websites and Twitter accounts. Investors may even meet the entrepreneurs. … They are not growing out of the ground like corn or wheat.”
His view exposes a broader concern: many so-called “network tokens” still maintain strong ties to centralized teams, are sold in fundraising rounds, or are promoted in ways that encourage speculative buying with implicit profit expectations. Some public comments submitted to the SEC have even questioned whether Bitcoin itself, when judged by economic reality rather than mythology, truly escapes the Howey test.
For governance tokens that double as revenue-sharing mechanisms, or liquid staking assets marketed with promises of financial upside, the risk of securities classification appears especially acute. As the SEC’s evolving framework makes clear, tokens that blur the line between utility and investment cannot simply hide behind claims of decentralization.
The stakes are high on both sides. For innovators, misclassification could mean higher compliance costs, reduced competitiveness, and the exodus of talent and capital to friendlier jurisdictions. For regulators, failing to apply securities laws where necessary could leave investors exposed to unchecked risks.
RELATED: The Great Debate: Are Cryptocurrencies Securities or Commodities?
Are ‘Network Tokens’ the Lifeline of DeFi Or Just Another Security in Disguise?
Decentralized finance (DeFi) lives and breathes through network tokens. They serve as governance mechanisms, staking assets, liquidity incentives, and the medium of exchange across thousands of protocols. Without them, the composability and speed of DeFi, as well as the ability to build lending, trading, and derivatives platforms on interoperable code, would not exist. If regulators classify these tokens as securities, much of DeFi’s core functionality would be legally constrained. For instance, staking rewards could be construed as investment returns, while governance tokens tied to fee revenue might look uncomfortably like shares.
The consequences would ripple far beyond DeFi-native projects. Exchanges might face enormous compliance hurdles, yield farming could vanish under the weight of securities law, and liquidity pools would dry up as protocols became legally untenable. Institutional adoption—already cautious—could grind to a halt. Even venture funding, which often depends on liquid token models, could see sharp pullbacks.
But there’s another side to this story. Some legal clarity, even if restrictive, could attract institutional investors who remain wary of the legal vacuum. Pension funds, ETFs, and major banks may only wade into DeFi once it is fenced by familiar securities safeguards. A shift toward compliance could bring new legitimacy, stronger infrastructure, and greater consumer trust. The danger is that this “institutionalization” of DeFi might come at the cost of its grassroots innovation, with only well-funded projects surviving the regulatory bar.
Position: Where the Balance of Evidence Lies
The commodities vs securities debate over Network Tokens is not black and white. Evidence suggests that both sides of the argument hold weight. Bitcoin and Ether demonstrate that some tokens function primarily as infrastructure rather than investments. On the other hand, a wide range of newer tokens are launched through fundraising sales, carry governance rights tied to revenues, or are promoted in ways that invite speculation. These economic realities align closely with the Howey test, meaning securities laws cannot simply be ignored.
The balance of evidence points to a spectrum rather than a binary. At one end are tokens that are more commodity-like, embedded in decentralized consensus and utility. At the other end are tokens that walk and talk like securities, marketed on profit potential and reliant on centralized teams. The challenge for regulators is crafting a classification system that reflects this spectrum without collapsing innovation under broad, one-size-fits-all rules. For the industry, the key will be embracing transparency and governance structures that highlight utility over speculation, while preparing for a future where hybrid models face heightened scrutiny.
Disclaimer: This piece is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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