SEC Proposes Token Classification as CFTC Targets Prediction Markets

• SEC submitted commission-level guidance on crypto securities laws to White House.
• The proposal aims to classify crypto tokens under SEC or CFTC oversight to clarify regulation.
• CFTC proposal targets fast-growing prediction markets tied to elections, sports, and events.

On March 3, the US Securities and Exchange Commission (SEC) submitted commission-level interpretive guidance to the White House explaining how federal securities laws may apply to crypto assets and related transactions.

The document, titled “Commission Interpretation on Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets,” is currently under review at the White House’s Office of Information and Regulatory Affairs (OIRA).

The proposal sits in a pre-rule stage while agencies examine its implications.

This guidance is expected to focus on a “token taxonomy,” a structured system to classify crypto assets. The goal is to determine which tokens qualify as securities under SEC oversight and which fall under other regulators, primarily the Commodity Futures Trading Commission (CFTC).

Token Classification Could Redefine the Market

Under the framework being discussed, tokens used mainly for fundraising with profit expectations may be classified as securities and fall under SEC oversight. As per Nate Geraci, the co-founder of ETF Institute, the SEC is not waiting for lawmakers to act.

Tokens designed for payments or as a store of value, such as Bitcoin-like assets, would likely be treated as commodities and overseen by the CFTC.

Utility tokens used to access a functioning network may fall somewhere in between, depending on how they are distributed and marketed.

Asset-backed tokens that represent real-world assets, such as property or artwork, may also fall under securities rules if investors expect a profit.

For crypto firms, securities classification requires registration or a valid exemption, along with detailed disclosures about the project, its management, and associated risks. Commodities or payment tokens face a different regulatory path.

CFTC Moves on Prediction Markets

Alongside the SEC proposal, the CFTC has submitted its own regulatory measure to the White House. The proposal focuses on prediction markets, a sector that has expanded rapidly in the past year.

Prediction markets allow users to trade contracts tied to real-world outcomes such as elections, sports results, or geopolitical events. Trading volume has surged, particularly around sports contracts, pushing the sector into multi-billion-dollar territory.

CFTC Chairman Michael Selig recently said the agency plans to release an advanced notice of proposed rulemaking. The aim is to set clear standards on which contracts can be listed and how platforms should evaluate new products.

Related: Hoskinson Warns CLARITY Act Makes New Tokens Securities by Default