SEC’s Designation of Crypto Assets as Securities: Unraveling Their Reasoning


Over the last few months, the SEC has taken to unilaterally labeling certain crypto assets as securities in unrelated lawsuits. But some industry participants say the agency doesn’t understand the technology behind these tokens well enough to make this claim.

SEC’s Lawsuits and Listed Tokens

In its complaint alleging Coinbase violated securities laws, the SEC listed 12 additional crypto tokens as securities:

  • ADA
  • CHZ
  • SOL
  • AXS
  • FIL
  • ICP
  • FLOW
  • NEAR
  • VGX
  • SAND
  • DASH

As of the time of publication, Coinbase had not delisted any of the above assets.

In its Binance complaint, the SEC claims 10 tokens, separate from the exchange’s native BNB and BUSD tokens, are securities. The tokens listed in the suit are:

  • SOL
  • ADA
  • FIL
  • ATOM
  • SAND
  • MANA
  • ALGO
  • AXS
  • COTI

In its July 2022 lawsuit against a former Coinbase employee for alleged insider trading, which settled on May 20, 2023, the SEC listed nine tokens as securities:

  • AMP
  • RLY
  • DDX
  • XYO
  • RGT
  • LCX
  • POWR
  • DFX
  • KROM

Coinbase has delisted only two of these tokens since the lawsuit was announced; Rally’s RLY and RGT, Rari’s governance token.

SEC’s Lack of Understanding

The SEC has been declaring crypto assets securities, but its reasoning is often opaque and erroneous. For example, the SEC claimed the “New Tendermint” is a significant contributor to the ATOM token, which experts dispute.

Additionally, the SEC claimed that the Interchain Foundation sold ATOM tokens in 2017, which is inaccurate as the Cosmos Hub, the issuer of ATOM tokens, launched in March 2019, and ATOM tokens were not transferable at launch.

The ATOM token itself does not meet the SEC’s standard to be a security, as determined by the Howey test, because the founding entity of the project has collapsed, and many contributors to its fundraise were also developers behind the project.

Incorrect Application of the ‘Deflationary Model’ Token Test

The SEC has designated tokens like SOL and MATIC as securities partly due to their “deflationary model.” However, this designation overlooks critical aspects of the operation of blockchain networks.

For example, the SEC wrote that “this marketed burning of SOL as part of the Solana network’s ‘deflationary mechanism’ has led investors to reasonably view their purchase of SOL as having the potential for profit.” But the Solana Foundation has noted in its economic documents that its token is an inflationary asset.

Similarly, Polygon’s MATIC token uses a similar fee-burning mechanism to Ethereum’s EIP-1559, which aims to minimize congestion and is not purely deflationary.


The SEC’s classification of crypto assets as securities is being questioned by experts who point out the regulator’s lack of understanding of the technology and nuances behind individual tokens and blockchain networks. Proper evaluation and understanding are crucial to ensure fair and effective regulation in the crypto space.

By Bessie Liu

Testimonies in Washington, DC

President of Polygon Labs, Ryan Wyatt, will also be sharing testimony in Washington, DC, discussing the critical role Web3 and blockchain infrastructure play in protecting users and ensuring privacy, and sharing positive use cases.

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