Security vs. commodity classification is the foundational US regulatory question that decides which oversight regime applies to a token. Securities trigger full disclosure and prospectus obligations under the SEC. Commodities carry lighter market-conduct rules under the CFTC. The outcome turns on whether holders profit from the efforts of others.
Classification has to be an input to economic design, not a filter you apply at the end. Every yield or governance feature you add for investors also adds Howey exposure.
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How it works
A token classified as a security falls under SEC jurisdiction and triggers registration, prospectus, and ongoing disclosure obligations, unless it qualifies for an exemption such as Reg D or Reg S. A token classified as a commodity falls under CFTC jurisdiction for derivatives and spot fraud, with lighter obligations on spot trading.
The classification does not turn on what the issuer calls the token. Regulators apply the Howey test for securities and the Commodity Exchange Act for the commodity definition. Bitcoin and Ether have been characterized as commodities for spot purposes, largely because neither depends on a central team's ongoing effort. Most early-stage tokens do not clear that bar.
Design consequence
For asset-backed tokens, the choices that support commodity classification are specific: no token yield or staking return, no governance rights over the underlying asset, a transparent market-set price rather than a redemption floor, and a passive custody structure where the token simply represents a warehouse receipt. Each choice shrinks the Howey surface without forcing the token to behave like a currency.
Example
A gold-backed token with a custodied reserve, no issuer yield, and a price set by the spot gold market is easier to defend as a commodity analog than one promising quarterly distributions or letting stakers govern reserve management. The first is structurally close to a warehouse receipt. The second adds the efforts-of-others and expectation-of-profit prongs.
See Token Classification and Compliance Guide for how this applies in practice.
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