Paul Atkins: “Tokenized Assets Remain Securities” — Outlining Which Tokens Pass the Howey Test

Speaking at the Ninth Annual Fintech Conference, the US SEC chair Paul Atkins offered a detailed view of how crypto assets should be understood under existing securities law.

In his remarks, Atkins emphasized that most crypto assets do not meet the definition of a security, and he clearly outlined various distinct categories.

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Functional and Decentralized Cryptosystems

Atkins opened by describing the essence of crypto systems that should not be considered securities, those that operate independently and are not driven by profit expectations tied to managerial control.

“Operation of a cryptosystem that is functional and decentralized rather than from the expectation of profits arising from the essential managerial efforts of others,” says Paul Atkins at the Ninth Annual Fintech Conference.

He underscored that decentralized networks, when fully operational and not reliant on central management, fall outside the logic of the Howey Test, which governs securities classification in the U.S.

Digital Collectibles: Culture, Not Contracts

Turning to NFTs and other digital media tokens, Atkins clearly stated that digital collectibles are not securities. He described them as expressions of ownership, creativity, and fandom, not vehicles for profit.

“Second, digital collectibles, in my opinion, are not securities. These crypto assets are designed to be collected and or used and may represent or convey rights to artwork, music, videos, trading cards, in-game items, or digital representations, or references to internet memes, characters, current events, or trends.”

“Purchasers of digital collectibles are not expecting profits from the essential managerial efforts of others.”

In other words, the intent and expectation of the buyer, not just the technology, should guide how such assets are treated.

Digital Tools and Practical Utility

Atkins then introduced a third category: digital tools, crypto assets that perform real-world or platform-based functions.

“Third, digital tools, in my opinion, are not securities. These crypto assets perform a practical function, such as membership, ticket credential, title instrument, or identity badge.”

“Purchasers of digital tools are not expecting profits from the essential managerial efforts of others.”

These tokens, he noted, serve practical purposes rather than speculative ones, functioning more like credentials, memberships, or access passes within digital ecosystems.

Tokenized Securities Remain Securities

Atkins, however, made a firm distinction when discussing assets that represent ownership of traditional financial instruments.

“The 4th and finally, tokenized securities are and will continue to be securities. These crypto assets represent the ownership of a financial instrument enumerated in the definition of a security that is maintained on a crypto network.”

He acknowledged that when blockchain merely digitizes a financial product, the regulatory classification should not change, the technology does not erase its legal nature.

When Crypto Assets Fall Within an Investment Contract

Despite asserting that most crypto assets are not securities, Atkins reminded the audience that context and issuer behavior can change that.

“Now, while most crypto assets are not themselves securities, crypto assets can be part of or subject to an investment contract.”

“These crypto assets are accompanied by certain representations or promises, to undertake essential managerial efforts that satisfy the Howie test.”

He explained that it is not the token itself, but the representations and promises made by issuers, such as managing the project or generating profit, that can bring an asset under securities law.

Revisiting the Howey Test

Atkins revisited the foundation of the Howey Test, the standard set by the U.S. Supreme Court to define investment contracts, to remind the audience what truly determines a security.

“So that we test at its core entails an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the essential managerial efforts of others.”

“A purchaser’s reasonable expectation of profits depends on the issuer’s representations or promises to engage in essential managerial efforts.”

“In my view, these representations or promises must be explicit and unambiguous as to the essential managerial efforts to be undertaken by the issuer.”

He noted that clarity and specificity in such promises are crucial to fair regulation, and that ambiguity should not automatically turn a digital asset into a security.

How a Non-Security Separates from a Contract

Addressing one of the most complex questions in crypto regulation, when and how a token stops being a security, Atkins offered a concise answer.

“So one must then ask how can a non-security crypto asset separate from an investment contract.”

“The simple yet profound answer is the issuer either fulfills the representations or promises, fails to satisfy them, or they otherwise terminate.”

In other words, once the obligations that created the investment contract are complete or no longer relevant, the asset itself should not remain bound by that classification.

The Howey Story: From Citrus Groves to Smart Contracts

To illustrate his point, Atkins turned to the original story behind the Howey Test, a historical case involving orange groves in Florida.

“For context, in the heart of Florida’s rolling hills, land that I know well from my upbringing stood the site of Mr. William J. Howie’s citrus empire in the early 20th century.”

“Mr. Howie purchased over 60,000 acres of largely untamed land to plant orange and grapefruit groves in the shadow of his mansion.”

“His company sold tracts of grove land to individual investors, then offered to cultivate, harvest, and manage the fruit on their behalf.”

“The Supreme Court examined Mr. Howie’s arrangement and established the test that would define investment contracts for generations.”

By returning to the origins of the Howey case, Atkins reminded his audience that the law was designed to assess arrangements, not assets, and that circumstances, not labels, determine regulation.

Transformation Over Time: The Florida Analogy

Atkins then painted a vivid picture of how the same land that once formed the basis of the Howey case has since transformed, an analogy he used to reflect on the evolution of digital assets.

“But today, Howie’s land tells a completely different story.”

“The original mansion that he built in 1925 in Lake County, Florida still stands a century later, hosting weddings and other gatherings, while the citrus groves that once surrounded it are largely gone, replaced by resort grounds, championship golf courses, and residential neighborhoods.”

“It’s a great place here to retire, but it’s difficult to imagine anyone standing amid those fairways and cul-de-sacs of neighborhoods today and concluding that they can constitute a security.”

He used the image to make a broader point about crypto regulation.

“And yet for years we’ve watched the same test applied rigidly to digital assets that have undergone transformations just as profound but still carry the label of their launch as if nothing had changed.”

“The soil surrounding Mr. Howie’s mansion itself was never a security. It became subject to one through a particular arrangement and ceased to be subject to one when that arrangement ended.”

“Of course, all the while, the land remained the same.”

Atkins’ analogy illustrated that assets can evolve and that regulatory frameworks must adapt to recognize when the conditions that once made something a security no longer exist.

Context, Not Code, Defines a Security

Through his remarks, Paul Atkins emphasized that most crypto assets are not securities and that the key determinant is context, not form.

From functional blockchains to digital collectibles and practical tools, Atkins called for regulators to focus on managerial promises and investor expectations, rather than blanket classifications.

By invoking the Howey Test’s agricultural roots, he concluded that while technologies and markets evolve, the principle remains timeless: arrangements can end, promises can be fulfilled, and assets, like the Florida soil, can remain the same.