The SEC’s Approach to Digital Assets: Inside Project Crypto (2025)
- James Ross
- Nov 26
- 12 min read
Executive Summary
In 2025, the U.S. regulatory landscape for digital assets underwent a profound transformation as the Securities and Exchange Commission (SEC) pivoted from a “regulation by enforcement” strategy to a structured, disclosure-based framework known as “Project Crypto.” Led by Chairman Paul S. Atkins, the SEC reinterpreted federal securities laws to adapt to decentralised ledger technology (DLT), aiming to balance capital formation with investor protection. This shift represents the most significant overhaul of the securities framework since the Howey test in 1946.
This report analyses Project Crypto’s legal basis, operations, and market impact. It posits that the project acts as a “re-regulation” strategy, replacing regulatory ambiguity with clear classification standards. Central to this is the “Atkins Taxonomy,” which classifies digital assets by economic substance rather than form. The formalisation of the “End of Investment Contract” doctrine provides a legal route for digital assets to exit the securities regime once sufficiently decentralised.
The report explains how Project Crypto aligns with significant legislative updates, including the enacted GENIUS Act, the House-passed CLARITY Act, and the 2025 RFIA draft. It highlights historic cooperation between the SEC and CFTC, resolving past jurisdictional issues. By analysing proposals like the “Regulation Crypto” scheme, the systematic dismissal of legacy enforcement actions, and the rescission of SAB 121, it predicts a maturing market characterised by capital repatriation, increased involvement from traditional financial intermediaries, and the recognition of digital assets as a distinct asset class.
1. Introduction: The Context of the 2025 Regulatory Pivot
1.1 The Pre-2025 Landscape: “Compliance Chaos” and Innovation Flight
Leading up to 2025, the U.S. digital asset market faced significant regulatory uncertainty. The prevailing regulatory doctrine relied heavily on the broad application of the Howey test to classify nearly all digital assets—excluding perhaps Bitcoin and Ether—as unregistered securities. This approach, characterized by “regulation by enforcement” and legal actions against major exchanges without a clear route to registration, led to a situation described by incoming Chairman Atkins as “compliance chaos.”
The uncertainty caused significant economic effects. The lack of clear rules led to “innovation flight,” with U.S. entities and intellectual capital moving to jurisdictions with established frameworks, such as the European Union’s MiCA, Singapore, and the UAE.
1.2 The Leadership Transition and the Crypto Task Force
The SEC’s shift followed a significant leadership change. Paul S. Atkins was nominated by President Trump and sworn in as the 34th Chairman on April 21, 2025. However, the groundwork for reform began earlier. Acting Chairman Mark T. Uyeda initiated a “regulatory ceasefire” by establishing the Crypto Task Force on January 21, 2025, led by Commissioner Hester Peirce. The Task Force immediately began rescinding hostile guidance, notably Staff Accounting Bulletin 121 (SAB 121) on January 23, 2025, and freezing pending enforcement actions.
1.3 The Genesis and Launch of Project Crypto
Chairman Atkins delivered a foundational policy address, “American Leadership in the Digital Finance Revolution,” on July 31, 2025, outlining the principles of the new regime.
The initiative’s foundation is “regulatory humility,” acknowledging the agency’s limited jurisdiction and that not all digital instruments are securities. Following extensive industry consultation, including the “Spring Sprint” roundtables and the “On the Road” listening tour (detailed in Section 4.2), the specific “Project Crypto” branding and roadmap were formally unveiled by Chairman Atkins in a keynote address at the Federal Reserve Bank of Philadelphia on November 12, 2025.
1.4 Strategic Pillars of the Initiative
Project Crypto is architected around five strategic pillars:
Definitional Precision: Implementation of a clear taxonomy distinguishing securities from non-securities based on economic function and the “essential managerial efforts” test.
Compliance Pathways: Development of tailored exemption regimes (“Regulation Crypto”) that accommodate the specific disclosure requirements of decentralised protocols.
Inter-Agency Calibration: Resolution of jurisdictional overlaps with the CFTC to establish a seamless regulatory perimeter for spot and derivatives markets.
Market Repatriation: Incentivising the return of digital asset enterprises to the U.S. through transparent rulemaking.
Custodial Modernisation: Reaffirmation of self-custody rights and the removal of regulatory impediments (e.g., SAB 121) for qualified custodians.
2. The Atkins Taxonomy: A Functional Approach to Classification
The core of Project Crypto is the “Atkins Taxonomy,” a classification framework based on the idea that “economic reality trumps labels,” categorising assets according to the rights they confer and the reasonable economic expectations of the holder.
2.1 Digital Commodities and Network Tokens
Classification: Non-Security
Definition: Assets intrinsically linked to and deriving value from the programmatic operation of a crypto system that is “functional” and “decentralised.”
Economic Reality (Decentralisation Test): The value is driven by supply and demand for the network’s utility (e.g., block space) rather than the “essential managerial efforts” of a centralised promoter.
Regulatory Implication: Spot trading falls outside the SEC’s jurisdiction and is likely within the CFTC’s jurisdiction.
2.2 Digital Collectables
Classification: Non-Security
Definition: Crypto assets (including NFTs) designed for collection or use, representing rights to artwork, media, or cultural phenomena.
Economic Reality (Consumptive Intent): Purchasers acquire these assets primarily for intrinsic aesthetic or utility value. Appreciation is attributed to market sentiment and scarcity rather than the promoter’s efforts.
Regulatory Implication: Establishes a safe harbour for creators and marketplaces, provided the assets are not fractionalized or marketed as investment products.
2.3 Digital Tools
Classification: Non-Security
Definition: Assets performing practical functions, such as membership credentials, event ticketing, identity verification, or facilitating decentralised governance (without dividend rights).
Economic Reality (Utility Test): Acquisition is driven by functional utility.
Regulatory Implication: Validates the utility token model, exempting them from securities registration requirements.
2.4 Tokenised Securities
Classification: Security
Definition: Crypto assets representing ownership of traditional financial instruments (e.g., equities, debt obligations) maintained on a blockchain.
Economic Reality (Substance Over Form): The medium of record-keeping (blockchain) does not alter the underlying substance of the instrument.
Regulatory Implication: Issuers must comply with all federal securities laws (e.g., Reg D, Reg S, or the proposed Regulation Crypto).
3. The “End of Investment Contract” Doctrine
A significant jurisprudential development within Project Crypto is the formalisation of the “End of Investment Contract” doctrine. This analysis challenges the presumption that an asset initially sold under an investment contract retains its security status in perpetuity.
3.1 The “Orange Grove” Precedent
Chairman Atkins has cited SEC v. W.J. Howey Co. (1946) to illustrate the distinction between the investment contract and the underlying asset. In Howey, the investment contract was the service agreement for citrus cultivation coupled with the land sale. The land (the grove) and the produce (oranges) were the subject of the contract but were not inherent securities.
Applying this precedent, Atkins argues that a token often functions as the “object” of the contract. While initially distributed via an investment contract (e.g., an ICO for network development), the token does not inherently possess the legal character of a security indefinitely.
3.2 The Lifecycle Analysis
The SEC’s approach recognises a lifecycle for digital assets:
Capital Formation Phase (Security): The issuer raises capital. Investors rely on the issuer’s managerial efforts. This transaction constitutes an investment contract.
Maturation Phase (Transition): The network becomes operational; control disperses from the founding entity to a distributed community.
End of Investment Contract (Commodity/Tool): The network achieves “functionality” and “decentralisation.” The purchaser no longer relies on the issuer’s efforts for value accretion.
Upon reaching the third stage, the asset separates from the investment contract, and secondary market transactions are generally no longer deemed securities transactions.
4. Operationalising Reform: The Crypto Task Force and Public Engagement
The Crypto Task Force, established on January 21, 2025, and led by Commissioner Hester Peirce, operationalised the policy shifts of Project Crypto.
4.1 Mandate and Strategic Priorities
The Task Force is charged with “drawing clear regulatory lines” and “providing realistic paths to registration.” On February 4, 2025, Commissioner Peirce outlined ten priorities, including Taxonomy Implementation, Jurisdictional Boundaries, Safe Harbour Development (“Innovation Exemption”), Registration Pathways, Broker-Dealer Modernisation (SPBD rules), Custody Guidance, Yield Products clarification, ETP Standardisation, Infrastructure Rules updates, and International Sandbox facilitation.
4.2 Public Engagement: The “Spring Sprint” and Listening Tour
To achieve these objectives and operationalise “regulatory humility,” the Task Force launched the “Spring Sprint Toward Crypto Clarity,” a series of public roundtables:
March 21, 2025: Defining Security Status.
April 11, 2025: Tailoring Regulation for Crypto Trading.
April 25, 2025: Key Considerations for Crypto Custody.
May 12, 2025: Tokenisation - Where TradFi and DeFi Meet.
June 9, 2025: DeFi and the American Spirit.
Complementing this, the Task Force conducted an “On the Road” listening tour to connect with smaller projects outside Washington D.C., visiting Berkeley (Aug 4), Boston (Aug 19), Dallas (Sept 4), and Chicago (Sept 15). These engagements informed the specific provisions of “Regulation Crypto.”
5. The Enforcement Unwind: Ending “Regulation by Enforcement”
Concurrently with the launch of Project Crypto, the Division of Enforcement underwent restructuring, including leadership changes within the Cyber and Crypto Unit (CACU). This signalled a recalibration of the agency’s posture, de-emphasising the strategy of utilising enforcement actions to establish broad policy precedents in favour of rulemaking.
The most tangible evidence of the 2025 shift was the systematic dismantling of the previous administration’s enforcement docket. This was framed as a strategic realignment to allow the Crypto Task Force to develop clear rules.
5.1 Major Dismissals and Closures
Key dismissals and closures included:
Coinbase: On February 27, 2025, the SEC filed a joint stipulation to dismiss its civil enforcement action against Coinbase with prejudice, citing the “pending work of the Crypto Task Force.”
Uniswap & OpenSea: The SEC formally closed its investigations into Uniswap Labs (Feb 24) and OpenSea (Feb 21), issuing no enforcement actions.
Binance: In May 2025, the SEC voluntarily dismissed its lawsuit against Binance and its founder.
Ripple: In November 2025, the SEC and Ripple filed a joint stipulation to dismiss all pending appeals, finalising the judgment that XRP is not a security in secondary market transactions and capping the penalty at $125 million.
Gemini: In February 2025, Gemini and the SEC requested a stay on litigation against the exchange entity to explore a resolution, consistent with the broader “stand-down” order.
Table 1: The 2025 Enforcement Unwind Matrix
Entity | Action | Date | Significance |
Coinbase | Dismissal (With Prejudice) | Feb 27, 2025 | Ended the flagship “unregistered exchange” case of the previous era. |
Uniswap | Investigation Closed | Feb 24, 2025 | Validated the DeFi interface model; no charges filed. |
OpenSea | Investigation Closed | Feb 21, 2025 | Signals that NFTs (Digital Collectables) are not a priority for enforcement. |
Binance | Dismissal (Voluntary) | May 2025 | Cleared the docket of legacy “regulation by enforcement” cases. |
Ripple | Appeals Dropped | Nov 2025 | Finalised the legal precedent that secondary sales are not securities. |
6. “Regulation Crypto”: A Tailored Disclosure Regime
Project Crypto includes the development of “Regulation Crypto,” a proposed offering regime recognising that standard corporate disclosures (Form S-1) are ill-suited for decentralised protocols.
6.1 The Disclosure Framework
Anticipated for proposal in late 2025, Regulation Crypto aims to substitute corporate-centric reporting with disclosures relevant to token holders, potentially including:
Technical Audits: Source code security and audit verification.
Tokenomics: Supply schedules, inflation mechanisms, and allocation distributions.
Governance: Protocol upgrade procedures and voting rights.
Network Operations: Consensus mechanisms and utility descriptions.
6.2 The Innovation Exemption
A key component is the “Innovation Exemption,” functioning as a regulatory sandbox.
Structure: It permits projects to raise capital while the network remains centralised.
Cap: The exemption is capped at $75 million in 12 months.
Mechanism: Issuers file a “Notice of Reliance” with the SEC 30 days before the offering, replacing the lengthy S-1 approval process.
Conditions: Issuers must demonstrate a specific business plan and an intent to decentralise. Entities classified as “blank check” companies or bad actors are excluded.
6.3 The Exit Mechanism (Sunset Clause)
Regulation Crypto is expected to incorporate a certification process for the “End of Investment Contract.” Issuers may certify that the network has achieved decentralisation, effectively terminating reporting obligations and transitioning the asset to the commodities regime (CFTC jurisdiction), barring SEC objection.
7. Legislative Frameworks: GENIUS, CLARITY, and RFIA
Project Crypto is designed to complement federal legislation active in 2025, which bolstered and, in some cases, mandated the administrative reforms.
7.1 The GENIUS Act (Enacted Law)
The Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) was the most significant legislative achievement of the year.
Status: Signed into law by President Trump on July 18, 2025.
Key Provisions: Explicitly removes payment stablecoins from SEC jurisdiction; mandates 100% backing with U.S. dollars or short-term Treasuries (banning algorithmic stablecoins); subjects issuers to strict AML/KYC requirements.
7.2 The Digital Asset Market Clarity Act (CLARITY)
The CLARITY Act addresses the broader market structure.
Status: Passed the House of Representatives on July 17, 2025 (294-134). Pending in the Senate as of late 2025.
Key Provisions: Defines assets intrinsically linked to blockchain systems as “Digital Commodities”; grants the CFTC exclusive jurisdiction over the spot market for digital commodities; includes federal preemption of state money transmission laws.
7.3 The Responsible Financial Innovation Act of 2025 (RFIA)
The RFIA draft provided the statutory blueprint for the SEC’s “Regulation Crypto.”
Status: Senate Banking Committee Discussion Draft (September 2025).
Key Provisions: Defines tokens sold via investment contracts as “Ancillary Assets” (which do not confer financial claims on the issuer); explicitly mandates the SEC to implement the “Regulation Crypto” disclosure regime; codifies the $75 million exemption cap.
7.4 The Senate Agriculture Committee Draft
A critical piece of the legislative puzzle emerged late in the year.
Status: Discussion Draft released on November 10, 2025, by Chair John Boozman (R-AR) and Senator Cory Booker (D-NJ).
Significance: This draft builds on the CLARITY Act but emphasises market conduct and CFTC intermediary regulation, representing the Senate’s distinct approach and necessitating reconciliation talks with the House.
8. Harmonisation and Jurisdiction: The SEC-CFTC Collaboration
Project Crypto marked a cessation of inter-agency jurisdictional disputes, prioritising “Inter-Agency Calibration.”
8.1 The Joint Statement
On September 5, 2025, SEC Chairman Atkins and Acting CFTC Chairman Caroline Pham issued a historic “Joint Statement on Regulatory Harmonisation.”
Core Agreement: The agencies agreed to collaborate on defining the boundary between “Digital Commodities” (CFTC) and “Digital Securities” (SEC), effectively endorsing the Atkins Taxonomy.
Specific Initiatives: The statement announced feasibility studies for:
24/7 Markets: Addressing clearing and settlement risks for continuous trading.
Event Contracts: Clarifying the listing of prediction market contracts.
Perpetual Futures: Exploring frameworks to “onshore” derivatives without expiry.
Portfolio Margining: Developing rules to permit cross-margining between spot crypto and derivatives, enhancing capital efficiency
8.2 New Leadership at the CFTC
The harmonisation effort was cemented by the nomination of Mike Selig as CFTC Chairman in October 2025 (advanced by the Senate Agriculture Committee on November 20, 2025). Selig, an advocate for "principles-based regulation,” was viewed as the ideal counterpart to Atkins.
9. Market Structure Transformation
The reforms of 2025 unleashed a wave of institutional adoption and market restructuring, driven by newfound regulatory clarity.
9.1 The Rescission of SAB 121 and Custody Reform
The rescission of Staff Accounting Bulletin 121 (SAB 121) on January 23, 2025, was the “starting gun” for institutional entry. SAB 121 had required custodians to record client crypto assets as balance sheet liabilities.
Impact: This action removed capital impediments for regulated banking institutions (e.g., BNY Mellon, State Street) to provide crypto custody services. This operationalised the “Custodial Modernisation” pillar, providing “qualified custodian” infrastructure for institutional investors.
9.2 Repatriation and Institutional Adoption
The combination of definitive asset classification (Atkins Taxonomy, GENIUS Act), viable custody solutions (SAB 121 rescission), and exchange legality (Coinbase dismissal) addressed primary institutional barriers. This led to “Market Repatriation,” reversing the “innovation flight” of previous years. Major U.S. financial institutions began piloting tokenised deposits and settling transactions on public blockchains.
9.3 Amnesty Considerations
While not explicitly labelled “amnesty,” the shift in enforcement focus suggests a transitional period in which firms that proactively register may face reduced penalties for historical non-compliance, provided no fraud occurred.
10. Political Economy and Implementation Risks
10.1 Legislative Divergence and Political Opposition
Project Crypto faces opposition. Senator Warren has criticised Chairman Atkins’ approach, citing potential conflicts of interest and weaker investor protections. Senator Brown has questioned the asset class’s public utility. This suggests that the legislative path for RFIA or CLARITY could be complicated. However, the bipartisan nature of the Senate Agriculture Committee’s November draft (Boozman-Booker) indicates that the new framework’s core tenets enjoy broad political support. Without statutory support, Project Crypto remains an agency policy that could be reversed administratively.
10.2 The “Regulatory Moat”
Industry participants have noted that while “Regulation Crypto” offers clarity, the associated compliance costs (audits, legal filings) may favour well-capitalised incumbents, potentially creating a “regulatory moat” that centralises the industry.
10.3 Enforcement Realities
Chairman Atkins has maintained that “regulatory humility” does not equate to abdication. The SEC retains a mandate to prosecute fraud. The “End of Investment Contract” analysis imposes a rigorous burden of proof for decentralisation; projects failing this test while neglecting reporting obligations remain subject to enforcement.
11. Conclusion
Project Crypto marks a strategic realignment at the Securities and Exchange Commission, shifting from an enforcement-led posture to a disclosure-centric regulatory model. By introducing the Atkins Taxonomy and the “End of Investment Contract” doctrine, the Commission has established the intellectual and legal infrastructure to integrate digital assets into the broader U.S. financial system.
The year 2025 witnessed a fundamental philosophical shift, replacing the “compliance chaos” of the past with a structured regime. These reforms, augmented by historic harmonisation with the CFTC and the modernisation of custody rules, position the United States to regain competitive advantage in the digital asset sector. However, the long-term efficacy of this regime depends on the enactment of complementary legislation to codify these administrative advances into federal law.
Appendix: Summary Tables
Table 2: The Atkins Taxonomy of Digital Assets (Consolidated)
Asset Category | Classification | Economic Reality & Legal Test | Regulatory Implication |
Digital Commodities / Network Tokens | Non-Security | Decentralisation Test: Value derived from the utility of a functional, decentralised network, not managerial efforts. | Spot trading is regulated by CFTC (under CLARITY)—no SEC registration for secondary trading. |
Digital Collectibles | Non-Security | Consumptive Intent: Purchased for intrinsic aesthetic or utility value. Appreciation is incidental to market sentiment. | Safe harbour for NFTs. Exempt unless fractionalized or marketed as an investment. |
Digital Tools | Non-Security | Utility Test: Performs practical functions (access, identity, governance) without dividend rights. | Utility-based regulation; exempt from securities laws. |
Tokenized Securities | Security | Substance Over Form: Traditional financial instruments recorded on a blockchain. | Complete SEC jurisdiction; compliance with Reg D, Reg S, or “Regulation Crypto” required. |
Table 3: Comparative Analysis of Key 2025 Legislative Proposals
Feature | GENIUS Act | Digital Asset Market Clarity Act (CLARITY) | Responsible Financial Innovation Act (RFIA) | Senate Agriculture Committee Draft |
Status (Late 2025) | Enacted Law (July 18) | House Passed (July 17) | Senate Banking Draft (Sept) | Senate Agriculture Draft (Nov 10) |
Primary Focus | Payment Stablecoins | Market Structure and Asset Classification | SEC Disclosure Regime | CFTC Market Conduct and Intermediary Regulation |
Key Definitions | “Payment Stablecoin” | “Digital Commodity” | “Ancillary Asset” | “Digital Commodity” |
Primary Regulator | Banking Regulators | CFTC (Exclusive spot jurisdiction) | SEC (Disclosure), CFTC (Spot) | CFTC (Robust registration regime) |
SEC Role | Explicitly excluded | Limited to Investment Contract Assets | Mandates SEC “Regulation Crypto” | N/A |
Preemption | Yes | Preempts state money transmission laws | Preempts state laws for covered assets | Yes |
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