SEC Chairman Paul Atkins announced on November 12, 2025 that the Commission will consider establishing a token taxonomy anchored in the Howey investment contract analysis.
Proposed framework represents a fundamental shift from the previous administration's approach, which largely treated most cryptocurrency tokens as securities subject to extensive regulation.
Atkins stated that he believes most cryptocurrency tokens trading today are not themselves securities. The SEC has dismissed the vast majority of enforcement cases it pursued in 2024, including actions against Coinbase, Binance, and Kraken.
This regulatory evolution arrives as cryptocurrency founders reexamine how value should flow between tokens and equity. Over the past decade, many projects adopted a dual-instrument model where tokens and equity captured separate value streams. Regulatory uncertainty forced founders to prioritize equity over tokens, creating misaligned incentives and governance challenges that undermined the core promise of decentralized networks.
The Historical Divergence: How Regulation Shaped Token Models
The initial coin offering era from 2016 to 2017 saw cryptocurrency companies raise capital through public token sales with no equity component. These projects sold tokens on the promise that protocol development would increase token value after launch.
The SEC applied the Howey test to public token sales starting with the 2017 DAO Report. In 2018, then-Director of Corporation Finance Bill Hinman identified "sufficient decentralization" as critical for compliance. The SEC published a framework in 2019 listing factors that increased the likelihood of a securities designation.
Companies abandoned initial coin offerings in favor of private equity raises. They used venture capital to fund protocol development and distributed tokens only after their work was complete. To comply with SEC guidance, companies had to avoid post-launch efforts that might boost token value.
Founders ceded protocol governance to tokenholders and turned to building proprietary products on top instead. The strategy was that token-based governance would provide a shortcut to sufficient decentralization. Companies could then contribute to the protocol as one participant among many in a broad ecosystem.
This model created three problems. First, it misaligned incentives between companies and tokenholders. Companies were pushed to drive value to equity rather than tokens, both to mitigate regulatory risk and satisfy fiduciary duties owed to shareholders.
Second, it depended on decentralized autonomous organizations to manage protocol development. Most tokenholders proved uninterested in governance. Coin voting led to slow, inconsistent outcomes.
Third, it failed to protect companies from legal risk. The SEC still investigated companies that used this model. Token-based governance introduced new legal risks, including the possibility that DAOs could be treated as general partnerships, exposing tokenholders to unlimited joint and several liability.
Onchain Versus Offchain: A New Framework for Value Distribution
The emerging framework distinguishes between onchain and offchain value. Tokens should capture value that lives onchain, including revenue and assets that are transparent, auditable, and directly owned and controlled by tokenholders. Offchain value should accrue to equity.
Ethereum's EIP-1559 exemplifies onchain value capture. The upgrade, which went live in August 2021 as part of the London Hard Fork, burns base transaction fees rather than paying them to miners. This mechanism permanently removes ETH from circulation, benefiting all tokenholders by reducing supply.
The base fee adjusts algorithmically based on network demand. When blocks exceed 50 percent of capacity, the base fee increases by up to 12.5 percent. The burned fees are destroyed by the protocol, cementing ETH's economic value within the Ethereum platform.
Other examples of onchain value capture include fee switches that redirect decentralized finance protocol revenue to onchain treasuries. Tokenholders could also receive revenue from intellectual property rights that they own and license to third parties. The critical factor is that value must be transacted onchain, where it can be directly observed, owned, and controlled by tokenholders without relying on an intermediary.
Offchain value cannot be directly owned or controlled by tokenholders. When revenue or assets exist in bank accounts, business relationships, or service contracts, tokenholders must rely on a company to intermediate the flow of value. That relationship is likely subject to securities regulation.
Companies that control offchain value may have a fiduciary duty to return it to shareholders rather than tokenholders. This does not mean having equity is problematic. Cryptocurrency companies can succeed using traditional business strategies, even when their core product is open-source software like public blockchains or smart contract protocols.
The distinction between tokens and securities lies in the rights and powers each instrument conveys. Securities generally convey a bundle of rights tied to a legal entity, such as economic rights, voting rights, information access rights, or legal enforcement rights. If the company fails, those rights become worthless.
Tokens convey a set of powers over onchain infrastructure. Those powers exist outside the boundaries of any legal entity, including the company that created the infrastructure. The company can fail, but the powers conveyed by the token persist.
Legal Structures and the One-Asset Model
Wyoming enacted the Decentralized Unincorporated Nonprofit Association Act on March 7, 2024, with an effective date of July 1, 2024. The law allows decentralized autonomous organizations to be recognized as DUNAs. These entities can engage in legal contracts, acquire and transfer property, open bank accounts, appear in court, and pay taxes while preserving their decentralized nature.
DUNAs provide tokenholders with limited liability and legal personhood. The structure requires at least 100 members who join through mutual consent for a common nonprofit purpose. The nonprofit designation means a DUNA cannot pay dividends or distribute income to members except to pay reasonable compensation for services rendered.
The Wyoming law addresses the fundamental misunderstanding that nonprofit status prevents profit-making activities. A DUNA may engage in such activities as long as all proceeds are reinvested in the organization's purpose rather than distributed to members.
Some founders are exploring a one-asset model where all value exists onchain and accrues to the token with no equity component. This approach aligns incentives between the company and tokenholders. It allows founders to focus entirely on making the protocol as competitive as possible.
Morpho, a decentralized lending protocol, has adopted this model. The protocol's governance is intentionally limited in scope. The core smart contract code is immutable. Governance powers include control over MORPHO tokens in the treasury, ownership of the upgradeable token contract, and activating a fee switch capped at a maximum of 25 percent of interest paid by borrowers.
The protocol launched the MORPHO token as non-transferable to allow the protocol to reach meaningful traction before a decentralized token launch. The governance later voted to enable transferability to advance Morpho's mission of making financial infrastructure a public good.
In a one-asset model, the company should be structured as a nonprofit or nonstock entity with no equity, dedicated solely to supporting the protocol it built. At launch, the company should transfer ownership and control to tokenholders, ideally organized as a DUNA or similar legal entity designed for blockchain-based governance.
After launch, the company may continue contributing to the protocol, but its relationship to tokenholders must not resemble an entrepreneur to its investors. Tokenholders may empower the company as a delegate authorized to exercise certain powers, or as a service provider contracted to perform specific work.
Companies in a one-asset model may generate offchain revenue to fund operations, but that revenue should be used solely for expenses rather than dividends or buybacks. The company could also be funded directly by tokenholders through treasury grants, token inflation, or other means that tokenholders approve.
The primary challenge for the one-asset model is regulatory uncertainty while clarity is forthcoming. One open question is whether governance can be eliminated entirely without triggering securities regulation. If tokenholders are entirely passive while the company retains some control, the relationship may begin to resemble the type securities law was meant to address.
Another question involves initial funding and protocol development. If there is no equity for founders to sell, how will they raise capital to build infrastructure? How should they decide who receives tokens at launch? What legal entity type should they use, and should it evolve from one form to another over time?
The regulatory environment has opened new territory for exploration. Both Congress and the SEC are considering frameworks that shift focus away from ongoing efforts and toward control of onchain infrastructure. Under a control-based approach, founders could generate token value without triggering securities law, provided the protocol operates independently and tokenholders retain ultimate control.