Today, companies use blockchain technology and digital assets for a variety of purposes. This Comment analyzes the digital token. If the Securities and Exchange Commission (SEC) views a digital token as a security, then the issuer of the digital token must comply with the registration and extensive disclosure requirements of federal securities laws.

To determine whether a digital asset is a security, the SEC relies on the test that the Supreme Court established in SEC v. W.J. Howey Co. Rather than enforcing a statute or agency rule, the SEC enforces securities laws by applying the Howey test on a fact-intensive case-by-case basis. This Comment takes the position that policymaking by enforcement is harmful to the financial technology industry and perpetuates the lack of clarity surrounding regulation of digital assets.

This Comment proposes a solution in which both Congress and the SEC play an integral role: 1) Congress should amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to exclude “digital token” from the definition of “security”; and 2) the SEC should issue an agency rule that creates a grace period for digital tokens to become fully decentralized before the SEC may evaluate whether they are securities.



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