In two recent articles, Latham & Watkins lawyers examine the SEC’s guidance on the application of securities regulations to digital assets and the questions that remain unanswered.

By Stephen P. Wink, Witold Balaban, John J. Sikora, Miles P. Jennings, Emanuel V. Francone, Cameron R. Kates, and Shaun Musuka

Digital Asset Regulation: Howey Evolves

In this article, the authors provide a comprehensive look at the SEC’s evolving guidance that aims to clarify when sales of digital assets (also known as tokens) are securities transactions. The authors discuss the Commission’s early application of the Howey test to digital assets, its pronouncements and enforcement actions, and the response of commentators. They then turn to the SEC’s Framework, issued in 2019, and other current SEC actions. They close by addressing steps the SEC should take to provide market participants with greater clarity on the application of the securities laws to digital assets.

INSIGHT: Crypto — The Pursuit of Sufficient Decentralization

In this article, the authors explore the SEC’s guidance on the application of the Howey test to digital assets. The Howey test is decades old and used to determine whether a financial instrument is a security. This guidance has cleared a path for certain stable coins or payment tokens to avoid securities regulation. However, a number of open questions still need to be addressed, including how to properly evaluate when a platform becomes sufficiently decentralized.