SEC vs CFTC: how US crypto regulation is split, the 2026 token taxonomy and what the CLARITY Act would change

Who this is for: compliance officers, fund managers, founders planning a token launch and policy readers who need to classify a token under the 2026 US framework, understand which agency supervises which market, and track what is still unsettled after the Senate’s September 2026 vote.

The single question that has shaped crypto regulation in the United States for a decade is deceptively simple: is this token a security or a commodity? The answer determines which agency regulates it, which rules an exchange listing it must follow, what disclosures an issuer owes, and whether a company can operate in the US at all. Two agencies claim the territory, their tests were written for a different century, and Congress has spent years failing to settle it.

The 2025 to 2026 period changed the shape of the problem without solving it. The SEC stopped treating most tokens as securities and started writing rules for the ones that are. The CFTC, which could only chase fraud in spot markets after the fact, began building a registration regime for crypto trading venues. Congress got closer than ever to a market structure law and then, on September 15, 2026, fell one vote short of even starting floor debate. The result in October 2026 is a framework that is far clearer than it was in 2024 but rests almost entirely on agency discretion.

This guide explains the two mandates, the SEC’s new taxonomy and proposed rulebook, the CFTC’s expansion into spot markets and event contracts, where the CLARITY Act stands, GENIUS implementation, and a worked example classifying three real tokens.

US crypto regulation by the numbers

Two agencies, two mandates

The Securities and Exchange Commission regulates the offer and sale of securities: stocks, bonds, investment contracts. Anyone issuing a security must register the offering or qualify for an exemption and provide ongoing disclosure; any venue trading securities must register as an exchange or broker-dealer. The Commodity Futures Trading Commission regulates derivatives markets on commodities: futures, options and swaps. Critically, the CFTC’s authority over the spot market for a commodity, meaning direct buying and selling rather than derivatives, has been limited to policing fraud and manipulation after the fact. It could not license or supervise a spot bitcoin exchange the way it supervises a futures exchange.

That gap was the problem. Bitcoin and ether are treated as commodities, so a spot exchange trading them was supervised by nobody at the federal level beyond anti-money-laundering rules from FinCEN and a patchwork of state money transmitter licences. If a token was a security, the exchange trading it needed SEC registration, which no crypto exchange had, and the SEC’s position under its previous leadership was that most tokens other than bitcoin were securities. The result was that the largest exchanges in the country operated for years under the threat of being declared illegal.

How the two regimes differ in practice

The custody row matters more than it looks. An adviser holding a token that is a security must use a qualified custodian under the Advisers Act; a futures customer’s collateral sits with a futures commission merchant under CFTC segregation rules; a plain spot commodity holding has no federal custody rule at all. Our custody guide covers the mechanics. The SEC’s October 1, 2026 proposal would permit adviser self-custody of crypto assets under conditions and let state trust companies act as custodians, with comments due 60 days after Federal Register publication.

The Howey test and the 2026 taxonomy

Whether something is an investment contract, and therefore a security, is decided under a 1946 Supreme Court case about Florida orange groves. SEC v. Howey asks whether there is an investment of money, in a common enterprise, with a reasonable expectation of profits, derived from the entrepreneurial or managerial efforts of others. Applied to tokens, the argument turns on the last two prongs. A token sold by a founding team to fund development, where buyers expect the team’s work to raise the price, looks like an investment contract. A token on a network that runs itself, with no central party whose efforts drive value, looks less like one.

The SEC’s 2019 framework and its litigation against Ripple, Coinbase, Binance and others tried to apply that logic case by case. The July 2023 Ripple ruling in the Southern District of New York, which held that XRP sold programmatically on exchanges was not a security while institutional sales were, showed how unstable the results could be: the same token was and was not a security depending on who bought it and how.

Five categories instead of one test

On March 17, 2026 the Commission issued an interpretation, Release 33-11412, that replaced the case-by-case approach with a taxonomy. It sorts crypto assets into five groups and states that most crypto assets are not themselves securities:

1. Digital commodities. Assets intrinsically linked to, and deriving their value from, the programmatic operation of a functional crypto system and from market dynamics, rather than from an expectation of profit from others’ managerial efforts. Not securities.
2. Digital collectibles. Assets designed to be collected or used, which may represent rights to artwork, music, video, trading cards, in-game items, or digital references to memes, characters, events or trends. Not securities.
3. Digital tools. Assets that perform a practical function such as a membership, ticket, credential, title instrument or identity badge. Not securities.
4. Stablecoins. Defined by reference to the GENIUS Act as a payment stablecoin issued by a permitted payment stablecoin issuer. Not securities; see our stablecoin guide.
5. Digital securities. Instruments already enumerated in the definition of security (a share, a bond, a fund interest) that are formatted as or represented by a crypto asset, with the ownership record kept on a crypto network. These are securities, full stop.

The interpretation then separates the asset from the contract. A non-security crypto asset becomes subject to an investment contract when an issuer offers it by inducing an investment of money in a common enterprise with representations or promises to undertake essential managerial efforts from which a purchaser would reasonably expect to profit. That contract ends when the issuer either fulfils those promises or fails to satisfy them, at which point the asset is just an asset again. The same release stated that protocol mining, protocol staking and wrapping a non-security asset do not involve securities offers, and that certain airdrops are not an investment of money under Howey. Those positions matter for the guides on staking and airdrops.

The move is to accept that the token and the sale are different things: the security is the promise the issuer made, and promises can be kept or abandoned.

Regulation Crypto Assets: the proposed rulebook

An interpretation tells you what is a security; it does not tell an issuer how to sell one lawfully. On August 21, 2026 the SEC proposed Regulation Crypto Assets (Releases 33-11434 and 34-106150, File S7-2026-27) to fill that gap. The comment period closes October 20, 2026. The proposal is built on the premise that existing registration frameworks were designed for companies issuing shares and are unfit for what it calls “covered investment contracts”: non-security crypto assets sold under an investment contract.

The three main pieces

Common rules apply to both exemptions. Rule 103 asks for disclosure tailored to the asset: the ecosystem, governance, development plans and security, rather than the company-centric line items of a share prospectus. Rule 104 imports Regulation A’s bad actor disqualifications. Antifraud and antimanipulation provisions apply regardless of exemption. Offering caps are inflation-adjusted under Rule 102, filings go through EDGAR, and reliance on the exemptions is non-exclusive, so an issuer could still use Regulation D or a registered offering instead. For a comparison with how companies rather than tokens reach public markets, see crypto IPOs and SEC filings explained.

The safe harbor is the piece founders care about most and the piece most likely to change between proposal and final rule. The release explicitly declines to make decentralization a bright-line test, noting commenter concerns that it is a continuum rather than a binary. Instead, the asset separates from the investment contract when the issuer has fulfilled its promised managerial efforts, or when a purchaser could no longer reasonably expect the issuer to fulfil or continue them. That is a fact-specific standard, and the comment file will determine how much objective guidance ends up attached to it.

The innovation exemption for tokenized stocks

Separately, on September 17, 2026 the Commission issued an order under its exemptive authority creating a new category called Tokenized Securities Venues. The order lets such venues trade tokenized National Market System stocks through permissioned automated market makers and liquidity pools without registering as exchanges, and exempts liquidity providers supplying their own capital from the dealer definition. The relief runs five years from publication; conditions include identical rights to the underlying share, auditable public smart contracts, trading halts matching the underlying stock, issuer notification and US-person screening. Chairman Paul Atkins described it as a bridge toward durable rulemaking; Commissioner Peirce called it an interim step on the road to permanent rules. Neither statement gives numeric symbol or volume limits. Our tokenized stocks guide covers the product side.

The CFTC moves into spot markets

The CFTC’s half of the story is about acquiring a power it never had. Through 2025 it worked around the statute: an August 2025 “Crypto Sprint” invited comment on routing spot crypto trading through registered futures exchanges, and in September 2025 the two agencies issued a joint statement that registered exchanges were not barred from listing spot crypto products. Chairman Michael Selig was sworn in on December 22, 2025, and as of October 2026 the Commission’s own commissioners page lists him alone, so the agency is acting with a single sitting member.

In 2026 the agency shifted from workarounds to rulemaking. Staff FAQs released March 20, 2026 and updated September 24, 2026 covered tokenized collateral, digital assets as margin, investing customer funds in tokenized permitted investments, and using blockchains to meet recordkeeping requirements. On September 28, 2026 the CFTC registered Coinbase Clearing LLC as a derivatives clearing organization. Then on October 5, 2026 it published an Advance Notice of Proposed Rulemaking for two frameworks, Regulation Crypto Asset Transactions (CTX) and Regulation Crypto Asset Markets (CAM), under section 2(c)(2)(D) of the Commodity Exchange Act, the provision covering leveraged retail commodity transactions.

The ANPRM would create a new designated contract market registration category built for crypto asset transactions. Reporting on the release describes three resulting lanes: state-licensed spot exchanges under CFTC anti-fraud oversight only, federal registration for leveraged retail crypto under CTX and CAM, and the existing DCM regime for derivatives. Federal registration is voluntary; access to retail leverage is the incentive. The CFTC also signalled that publishing software alone would not trigger registration, and that transferring assets to a customer wallet within 28 days would satisfy the actual delivery exception. Leverage limits, capital standards and custody models are not yet specified. Comments are due 60 days after Federal Register publication. The same day, the agency issued a no-action letter letting DCMs convert perpetual-style index futures into true perpetual futures, which bears on the market described in our perpetual futures guide.

Event contracts and prediction markets

The CFTC’s other 2026 workload was event contracts. Prediction markets like Kalshi and Polymarket list binary contracts on elections, economic data, sports and culture on CFTC-registered DCMs through self-certification. Three staff advisories tightened the process without new rules: a July 24, 2026 advisory warned DCMs against broad template-style certifications that bundle many contract variations into one filing; an August 12, 2026 advisory addressed self-certification of incentive programs; and a September 22, 2026 advisory on “mention markets”, contracts that settle on whether a named person says a word or attends an event, said they carry a heightened manipulation risk because settlement turns on one person’s conduct. Reporting from late September 2026 described three active CFTC investigations into Polymarket contracts and a Kalshi request to permit margin on event contracts other than sports and mention markets. How these venues work is covered in how prediction markets work.

Where the CLARITY Act stands

Guidance can be reversed by the next administration, which is why the industry’s priority became legislation. The Digital Asset Market Clarity Act, H.R. 3633, passed the House on July 17, 2025 by 294 to 134, with 78 Democrats joining every Republican. Its core mechanism is a definition: a “digital commodity” is a token whose value derives from the use and functioning of a blockchain, and a network that meets a decentralization test, with no single party controlling it, is treated as a commodity system whose tokens fall to the CFTC. Tokens sold to raise capital would be securities at issuance but could transition to commodity status once the network matures. The bill would give the CFTC full authority over spot digital commodity markets, require exchanges to register with one agency or the other, and impose customer asset segregation and disclosure rules.

The Senate took most of a year. The Agriculture Committee approved its digital commodity title in January 2026 and the Banking Committee reported its securities title on May 14, 2026 by 15 to 9, according to CCS reporting at the time. The merged text stalled through the summer over the decentralization test, DeFi treatment, the SEC’s residual authority and, decisively, ethics provisions restricting crypto holdings by the President, his family and senior officials. Republicans circulated a 635-page revision with 126 Democratic-requested changes over the weekend before the vote.

On September 15, 2026 the Senate voted on cloture on the motion to proceed to H.R. 3633. It failed 49 to 50 with one senator not voting; 60 votes were required. Three Republicans (Collins, Hawley and Tillis) voted no, and seven Democratic co-sponsors of the Senate text, including Gillibrand, Warner and Booker, voted against proceeding. A cloture failure on a motion to proceed means the Senate never began debating the bill. It does not kill the measure, which remains on the calendar, but with midterm elections in November 2026 there is no obvious path before the 119th Congress ends in January 2027. Within days Coinbase chief executive Brian Armstrong said the industry could no longer wait on Congress and would focus on the SEC and CFTC, and the Fairshake political action committee announced spending against senators it blamed for the stall.

What the agencies can and cannot do without a statute

• They can interpret the definition of security (the March 2026 taxonomy), write exemptions for securities offerings (Regulation Crypto Assets), grant exemptive orders (the innovation exemption) and use existing CEA provisions on leveraged retail transactions (the CTX and CAM ANPRM).
• They cannot give the CFTC plenary authority over unleveraged spot commodity markets, pre-empt state money transmitter regimes, bind a future Commission, or create a statutory decentralization test that courts must apply.

GENIUS Act implementation

One piece of the puzzle did make it into statute. The GENIUS Act, passed by the Senate 68 to 30 on June 17, 2025 and by the House 308 to 122 on July 17, 2025, was signed on July 18, 2025. It creates a federal licence for payment stablecoin issuers, requires 100 percent reserve backing in dollars, Treasury bills of 93 days or less or insured deposits, mandates monthly reserve disclosure, and takes effect on the earlier of 18 months after enactment (about January 18, 2027) or 120 days after the primary regulators finalise their rules. The SEC’s March 2026 taxonomy then defined stablecoins by reference to the GENIUS permitted issuer status, so the two regimes are linked.

Rulemaking has run through 2026. Treasury took comment on an advance notice in autumn 2025; the OCC and FDIC proposed rules for national bank and insured bank subsidiaries in early 2026 with comments due in May 2026; and on September 24, 2026 the Federal Reserve proposed two rules for Board-supervised issuers, one setting reserve, capital and custody standards and one setting the application process, with a 60-day comment period. Final rules from all three banking agencies are the trigger that could pull the effective date forward from January 2027. The European parallel, where the rules have been in force since 2024, is covered in what is MiCA, and the tax treatment of stablecoin and token transactions in US crypto tax rules explained.

Why it matters to an institution

The classification decides everything downstream. A commodity can be held through a spot ETF, traded on a CFTC-registered venue and custodied by a bank under commodity rules; see how spot bitcoin ETFs work and the ETF tracker. A security requires a registered issuer, a registered exchange or ATS, a transfer agent and broker-dealer or qualified custody, none of which most tokens have. Until the line is in statute, an institution holding anything beyond bitcoin and ether is holding an asset whose legal status rests on agency guidance, and its compliance team knows it.

What changed in 2026 is the quality of that guidance. A general counsel can now point to a published taxonomy with defined categories, a proposed rule with dollar thresholds and a stated test for when an investment contract ends. That is a far better position than relying on a 2019 staff framework and a stack of inconsistent district court opinions. But it is a position built on three votes at one agency and one sitting commissioner at the other, which is why the September 2026 Senate vote mattered more to institutional desks than to the price of bitcoin.

How we got here: a timeline

Worked example: classifying three tokens under the proposed framework

How to evaluate a token’s regulatory status: a checklist

• Which of the five categories fits? Start with the March 2026 taxonomy. A token that is clearly a share, bond or fund interest in token form is a digital security and the rest of the analysis does not matter.
• Was there an issuer making promises? Look at the original sale documents, whitepaper and marketing. Promises to build, list, buy back or grow are the “essential managerial efforts” that create an investment contract.
• Have those promises been fulfilled or abandoned? A functional mainnet, delivered roadmap or defunct team each argue the contract has ended. Ongoing treasury-funded development that buyers still rely on argues it has not.
• Is the network functional? The digital commodity definition requires a functional crypto system. A token whose network is still on testnet cannot be a digital commodity yet.
• Which exemption did the issuer use, if any? After Regulation Crypto Assets is finalised, check EDGAR for Startup or Fundraising Exemption filings and whether the issuer met its reporting obligations.
• Where does it trade, and under which registration? A CFTC-registered DCM, a state-licensed spot exchange, an SEC-registered ATS and an offshore venue carry different protections and different legal exposure for a US holder.
• How is it custodied? If the token might be a security, an adviser needs a qualified custodian; the October 2026 SEC proposal would broaden who qualifies. A commodity has no federal custody rule.
• What is the stablecoin status? For a dollar token, is the issuer a GENIUS permitted payment stablecoin issuer or on track to become one before the 2027 effective date?
• Is the position reversible? Everything above rests on an interpretation and proposed rules. Document the reliance so the position can be revisited if the Commission’s composition or the statute changes.

Risks and open questions

Reversibility. The 2026 framework is administrative. An interpretation can be withdrawn, a proposed rule can be abandoned before adoption, and an exemptive order can be modified by a later Commission. Peirce’s departure on October 1, 2026 removes the architect of the Crypto Task Force, and the CFTC is operating with a single commissioner. Statute was supposed to lock in the gains; the September 2026 vote means that lock is not in place.

The safe harbor test. Both the interpretation and Regulation Crypto Assets rely on whether an issuer’s promised efforts have been fulfilled or can no longer reasonably be expected. That is a judgement about expectations, not a checklist, and the release explicitly declined to make decentralization a bright line. Until the final rule or a court applies it, two lawyers can read the same project differently, which is the problem the framework was meant to end.

Gaps between the agencies. The SEC taxonomy says digital commodities are not securities; the CFTC ANPRM proposes how venues trading them would register. Neither document defines the handoff. A token that leaves securities status through the safe harbor lands in a CFTC regime that is still an advance notice, with leverage limits, capital and custody standards unspecified. State money transmitter law continues to apply to spot venues that do not opt into federal registration.

Prediction markets and politics. Event contracts have become a politically visible part of the CFTC’s remit, with investigations into Polymarket contracts and advisories on mention markets in September 2026. A midterm election in November 2026 with active election markets could produce the incident that forces Congress to legislate on event contracts separately from the broader market structure fight.

What to watch next

Glossary

Howey test

The 1946 Supreme Court standard for an investment contract: an investment of money, in a common enterprise, with an expectation of profit derived from the efforts of others.

Investment contract

One of the instruments listed in the statutory definition of security. Under the 2026 SEC interpretation, it is the promise an issuer makes when selling a crypto asset, separate from the asset itself.

Digital commodity

A crypto asset whose value derives from the programmatic operation of a functional crypto system and market dynamics. Not a security under the March 2026 interpretation.

Digital collectible

A crypto asset designed to be collected or used, such as art, in-game items or a reference to a meme. Not a security.

Digital tool

A crypto asset with a practical function such as a ticket, membership, credential or identity badge. Not a security.

Digital security

A conventional security such as a share or bond recorded as a token on a crypto network. A security in every respect.

Covered investment contract

The proposed Regulation Crypto Assets term for a non-security crypto asset that is sold subject to an investment contract.

Safe harbor

A rule stating that if listed conditions are met, an asset is deemed outside a legal definition. Rule 400 of the proposal would deem an asset not subject to an investment contract.

Cloture

The Senate procedure to end debate and move to a vote, requiring 60 votes. The September 15, 2026 CLARITY vote was cloture on the motion to proceed, the step before debate begins.

Designated contract market (DCM)

A CFTC-registered exchange for futures, options, swaps and event contracts. The October 2026 ANPRM proposes a new DCM category for crypto asset transactions.

Event contract

A derivative that pays out on whether a specified event occurs; the instrument underlying prediction markets.

Section 2(c)(2)(D)

The Commodity Exchange Act provision covering leveraged or margined retail commodity transactions, the legal basis for the CFTC’s CTX and CAM frameworks.

Permitted payment stablecoin issuer

An entity licensed under the GENIUS Act to issue dollar stablecoins, which the SEC taxonomy uses to define the stablecoin category.

Tokenized Securities Venue

The entity category created by the SEC’s September 2026 innovation exemption for trading tokenized NMS stocks through permissioned automated market makers.

Why it matters

For twelve years the US regulated crypto by litigation, and the question of which agency owned a token was answered one court case at a time. In 2026 both agencies finally wrote down their answers: the SEC said what is and is not a security and proposed how to sell the ones that are, and the CFTC proposed how to supervise trading in the ones that are not. That is the most coherent framework the US has had, and it is also entirely dependent on who holds the pen. The CLARITY Act was the attempt to take the pen away from the agencies and hand the answer to Congress, and on September 15, 2026 it fell one vote short of a debate.

The practical lesson for anyone holding, issuing or listing a token is to use the clarity that exists while documenting its fragility. Classify under the taxonomy, plan launches around the proposed exemptions, and watch the comment files, the nominations and the November 2026 election, because each of them can move the line that a decade of lawsuits could not.

Sources

1. SEC: SEC Clarifies the Application of Federal Securities Laws to Crypto Assets (Release 2026-30), March 17, 2026
2. SEC: Fact Sheet, Interpretation on Crypto Assets (Release 33-11412), March 17, 2026
3. SEC: Regulation Crypto Assets, Proposing Release (33-11434; 34-106150; S7-2026-27), August 21, 2026
4. SEC: SEC Issues Innovation Exemption to Facilitate the Trading of Tokenized NMS Stock (Release 2026-90), September 17, 2026
5. SEC: Chairman Atkins, Statement on the Innovation Exemption: A Bridge Toward Durable Rulemaking, September 17, 2026
6. SEC: Commissioner Peirce, Slumber Number: Innovation Exemption Statement, September 17, 2026
7. SEC: Proposal on How Investment Advisers and Funds Can Custody Crypto Assets (Release 2026-100), October 1, 2026
8. SEC: Atkins and Uyeda, Statement on Departure of Commissioner Hester Peirce, October 1, 2026
9. US Senate: Roll Call Vote 119-2-234, Cloture on the Motion to Proceed to H.R. 3633, September 15, 2026
10. CFTC: CFTC Seeks Public Comment on ANPRM Relating to Regulation Crypto Asset Transactions and Regulation Crypto Asset Markets (9307-26), October 5, 2026
11. CFTC: Staff Releases Updates to FAQs Concerning Crypto Assets and Blockchain Technologies (9303-26), September 24, 2026
12. CFTC: CFTC Releases Staff Advisory on Mention Markets (9302-26), September 22, 2026
13. CFTC: CFTC Releases Advisory on Self-Certification of an Event Contract Series (9273-26), July 24, 2026
14. CFTC: Commissioners, accessed October 6, 2026
15. Crypto Coin Show: Senate Democrats block CLARITY Act over Trump ethics provisions, September 15, 2026
16. Crypto Coin Show: CFTC opens rulemaking for retail crypto leverage to compete with offshore trading, October 5, 2026
17. Crypto Coin Show: Fed proposes reserve and capital rules for GENIUS Act stablecoins, September 24, 2026
18. Crypto Coin Show: The GENIUS Act, updated March 2026
19. Crypto Coin Show: Kalshi Klear asks CFTC to permit margin on event contracts, September 22, 2026
20. Crypto Coin Show: Polymarket appoints ex-Goldman Sachs partner amid three CFTC investigations, September 29, 2026

Disclosure: This guide is for education only and is not investment, legal or tax advice.