SEC Crypto Securities Determination: How Binance Tokens Are Classified Under U.S. Law

The **determination of securities attributes** for cryptocurrencies in the United States hinges on whether a token is sold as an **investment contract** under the **Howey Test**, not merely on the token’s technical design, with recent **SEC-CFTC joint rules** and **court rulings** in the **Binance lawsuit** creating a dynamic framework where tokens can shift between security and non-security status based on issuer promises and market conditions.

Understanding the Core Legal Framework: The Howey Test

The **U.S. Securities and Exchange Commission (SEC)** relies primarily on the **1946 Supreme Court ruling in SEC v. W.J. Howey Co.** to determine if an asset qualifies as a security. Under this test, an asset is a security if four conditions are met:

• There is an **investment of money**
• In a **common enterprise**
• With **expectations of profits**
• Derived predominantly from the **efforts of others** (i.e., the issuer or third parties)

In the context of crypto, the SEC argues that many tokens are sold with **explicit promises** from issuers to undertake **essential managerial efforts**, and purchasers reasonably expect profits from those efforts. However, the SEC clarified that **third-party hype** or **post-sale promises** alone do not create an investment contract; promises must be made through **official channels** like whitepapers or regulatory filings before or at the time of sale.

The Binance Lawsuit and SEC’s Expanded Securities List

The **SEC’s lawsuit against Binance** significantly expanded the list of tokens it considers securities. Initially, the SEC alleged that **12 crypto assets** were securities, including **BNB**, **BUSD**, **Solana (SOL)**, **Cardano (ADA)**, **Polygon (MATIC)**, **Cosmos (ATOM)**, **Sandbox (SAND)**, **Decentraland (MANA)**, **Axie Infinity (AXS)**, and **COTI**. Later, the SEC added **10 more**, bringing the total to **61 cryptocurrencies** deemed securities. These include major projects like **Filecoin (FIL)**, **Algorand (ALGO)**, and **Terra USD (UST)**. The SEC claimed Binance violated the **Securities Act of 1933** by offering unregistered securities through programs like **BNB Vault**, **Simple Earn**, and **staking-as-a-service**. The regulator argued that **BNB** and **BUSD** were offered as investment contracts from inception, making them securities.

Court Rulings: A Shift in Interpretation

Despite the SEC’s aggressive stance, a **federal court ruling** in the **SEC vs. Binance** case delivered a major victory for the crypto industry. **Judge Amy Berman Jackson** ruled that **cryptocurrencies themselves are not securities**, and specifically that **secondary sales of BNB** do not constitute securities offerings. The judge emphasized that the focus should be on the **circumstances of each token sale**, not the token itself. This means that a token may be a security during its initial sale if sold as an investment contract, but **ceases to be a security** once the issuer fulfills its promises or abandons the project.

New SEC-CFTC Joint Rule: A Dynamic Taxonomy

On **March 17**, the **SEC** and **CFTC** issued a **68-page interpretive rule** establishing the first formal **taxonomy for crypto assets** under federal securities law. The rule categorizes crypto assets into five groups:

• Digital commodities (e.g., Bitcoin)
• Digital collectibles (e.g., meme coins for entertainment)
• Digital tools
• Stablecoins
• Digital securities

The first three categories are **explicitly non-securities** under this interpretation. Notably, **meme coins** are classified as digital collectibles and thus **not securities**. The rule also clarifies that **protocol mining**, **protocol staking**, **wrapping**, and **airdrops** are **not securities transactions**. However, **custodians guaranteeing staking yields** fall outside the safe harbor because guaranteed returns imply **discretionary business decisions**, triggering securities status.

Implications for Binance and the Crypto Industry

For **Binance**, the court’s ruling that **secondary BNB sales are not securities** is a critical legal shield, though the SEC continues to pursue claims about **initial sales** and **staking programs**. The industry now faces a **dynamic framework** where tokens can **enter and exit** security status based on ongoing **managerial promises**. This could **expand institutional participation** while forcing projects to **restructure token offerings** to avoid securities classification.

Key Takeaways for Investors and Projects

• Tokens are **not inherently securities**; classification depends on **marketing** and **issuer promises**.
• **Secondary market trading** of a token may not be a securities transaction if the issuer has **fulfilled promises** or **abandoned the project**.
• **Staking and mining** are generally safe, but **guaranteed yields** from custodians may trigger securities status.
• **Wrapped tokens** backed 1-for-1 by non-securities are **not securities**.
• **Airdrops** without consideration do not meet the **investment of money** requirement of the Howey test.