Director Moloney's Division of Corporation Finance is proposing a framework to define when tokens aren't securities. It's the clarity the industry has needed for years.

SEC Proposes Crypto Taxonomy to Define Securities Status 

The SEC's Division of Corporation Finance is proposing the development of a clear taxonomy for crypto assets—a structured framework that would determine when a token is no longer considered an investment contract under securities law. Director Moloney is spearheading the effort, and if it moves forward, it could represent one of the most significant regulatory shifts the industry has seen.

Here's why this matters. For the better part of a decade, the SEC's approach to crypto has been enforcement-first. They sue projects, secure settlements, and through that process, case law slowly builds up around what is and isn't a security. It's expensive, it's slow, and it leaves the entire industry operating in a gray zone where even well-intentioned projects can't be sure they're compliant until they're already in court.

A taxonomy would flip that model. Instead of waiting for enforcement actions to define the rules, the SEC would publish criteria—specific, measurable conditions that determine whether a crypto asset qualifies as an investment contract. Once a token no longer meets those criteria, it exits securities regulation. That's not a minor procedural change. That's a fundamental shift in how the industry would operate.

The challenge, of course, is execution. Crypto assets don't fit neatly into traditional financial categories. A token can start as a security during a fundraising phase, then evolve into something closer to a commodity or utility once a network decentralizes. The Howey Test—the legal standard the SEC currently uses—was written in 1946 for orange groves. Applying it to programmable digital assets has always been awkward at best.

What Moloney seems to be proposing is a framework that accounts for that evolution. A token issued in a centralized pre-launch sale where profits depend entirely on a core team's efforts? Probably a security. That same token three years later, trading on decentralized infrastructure with no identifiable promoter and no reasonable expectation of profit from others' work? Maybe not. A taxonomy could formalize that progression instead of leaving it to litigation.

The risk is that the framework becomes either too rigid or too vague. If it's overly prescriptive, it stifles innovation. If it's too open to interpretation, it defeats the purpose of having clear rules in the first place. But even an imperfect taxonomy would be better than what exists now, which is essentially nothing.

This is still a proposal. It hasn't been finalized, and there's no guarantee it survives internal pushback or political shifts. But the fact that it's being discussed at all—coming from the Division of Corporation Finance, not from outside advocacy groups—suggests there's recognition inside the SEC that the current approach isn't sustainable. Whether that recognition translates into actual policy remains to be seen. But for the first time in years, there's a path toward clarity that doesn't require getting sued first.