Disclaimer: This article is written by the author of the Web3 Compliance Research Group to share personal research findings and is for readers’ reference and discussion only. It does not constitute any investment advice, nor does it constitute promotion of any virtual currency or related operators. The article was first published on Substack (dt42ai.substack.com).
The Starting Point of the Problem:
Law is always behind technology. But the lag itself is not the problem; the problem lies in the manner of the lag.
Over the past decade, the United States has chosen a specific manner of lagging in its regulation of crypto assets: forcing new phenomena into old frameworks, substituting enforcement for legislation, and replacing rule-setting with case-by-case judgments. The cost of this approach is twofold: it neither truly protects investors nor provides predictable growth space for innovation.
The SEC interpretive rule released on March 17, 2026, represents an explicit correction of this lagging approach. But its significance extends far beyond policy shift; it touches upon a more fundamental legal philosophy question: when the object itself possesses multiple attributes, what should law regulate?
The answer to this question follows a clear intellectual trajectory spanning six years. On February 6, 2020, then-SEC Commissioner Hester Peirce delivered a speech titled “Running on Empty” at the Chicago Blockchain Summit, describing the regulatory dilemma as a self-reinforcing paradox: tokens cannot be widely distributed due to potential securities attributes, yet the network must achieve widespread distribution to achieve decentralization and thus escape securities attributes — what she called “regulatory Catch-22.” This structural paradox is addressed in the 2026 framework six years later through a different logical path: not by giving project teams time to allow technology to naturally mature, but by redefining the boundaries of “investment contract,” shifting regulatory focus from the technical state of the asset to the specific conduct of the issuer.
Atkins directly acknowledged at the summit that the intellectual genealogy of this framework traces directly to Peirce’s 2020 Token Safe Harbor proposal. This is a rare instance of inter-generational institutional transmission in regulatory history: the originator failed to secure adoption, but the successor realized the same policy direction through a different institutional form six years later.
From Attribute Theory to Conduct Theory:
The regulatory logic of traditional securities law is built upon an implicit premise: that the legal object possesses fixed attributes. A contract is either a security or it is not; an instrument is either a stock or it is not. This binary judgment was effective in the industrial age because the attributes of financial instruments remained relatively stable, issuance structures were relatively clear, and rights and obligations were relatively certain.
Crypto assets shatter this premise. The same token can exhibit drastically different economic characteristics in different contexts: it can be a commodity, a collectible, a tool, the subject of an investment contract, or even transition between different roles over time at different points. Attributes are no longer fixed; they are context-dependent, time-sensitive, and relationship-determined.
The core legal contribution of this interpretation lies in establishing a clear separation principle: that a non-securities crypto asset becoming the subject of an investment contract does not mean the asset itself becomes a security. The original formulation of this judgment appeared as early as Peirce’s 2020 critique — she explicitly pointed out that confusing “tokens as the subject of investment contracts” with “the investment contract itself” produced catastrophic consequences, preventing token networks from achieving their intended functions. The 2026 interpretation upgrades this academic-level identification into a formal institutional principle.
The establishment of this principle marks a fundamental shift in regulatory philosophy from attribute theory to conduct theory. What is regulated is no longer the nature of the asset itself, but specific conduct surrounding the asset — the issuer’s statements and commitments, the process by which buyer expectations are formed, the creation and termination of investment contracts. Law no longer asks “what is this,” but rather “in this specific context, who did what, and what reasonable expectations resulted.”
But the problem of separation is not confined to a single level. What Peirce identified was confusion at the legal analysis level: tokens treated as the investment contract itself, rather than the subject of the investment contract. This is the first layer of separation misalignment, a conceptual problem that can be corrected through hermeneutic refinement. The 2026 framework completed such an important legal clarification in this sense.
However, beneath this lies a second layer of separation that is more prevalent in practice and more difficult for legal frameworks to capture: the economic decoupling between tokens and the actual business of project teams. In a considerable number of crypto projects, tokens circulate on-chain, while the project team’s actual business — revenue sources, user acquisition paths, core operational decisions — operates entirely off-chain, with virtually no real economic transmission mechanism to the token. The financial fortunes of token holders do not truly depend on the operation of the on-chain protocol, but rather on the life and death of a commercial entity operating off-chain. This separation is not a technology problem but a business model problem: issuing tokens is a financing tool, establishing business is an independent operational logic, and the two are designed to be separate from the start. Whitepapers can describe ecosystem visions, roadmaps can list technical milestones, but the relationship between these texts and the off-chain activities through which project teams actually generate revenue may never involve any legally binding connection.
The 2026 interpretive rule greatly delegates the power to define the scope of “essential managerial efforts” to the issuer itself: the interpretive rule explicitly states that determining whether an issuer has fulfilled its commitments depends on “how the issuer defines or describes the content of its commitments,” rather than an external, observable, verifiable objective technical standard. The internal logic of this design is understandable — commitment form is the node most easily verified ex post. But when the commitment object itself (the on-chain value of the token) and business reality (the off-chain revenue of the project team) have never had or are extremely thin in transmission mechanisms, formal completeness of commitment language cannot capture the essence of economic reality. An issuer can carefully design the boundaries of its commitments, compliance form can be fully satisfied, while the actual risk exposure of token holders remains exposed to an off-chain commercial entity operating outside regulatory sight. Conduct theory changed the regulatory entry point, but for second-layer separation problems, the legal handles it provides still rest on the assumption that “representations match reality,” an assumption that itself requires verification.
Winston & Strawn’s deep analysis of the Howey test points out that the core of investment contract analysis is “promotional emphasis” — whether the issuer objectively guided purchasers to view their purchase as investment rather than consumption, with judgment standards being examination of “economic reality” rather than technical architecture. (Tcherepnin v. Knight, 389 U.S. 332, 336: “form should be disregarded for substance and the emphasis should be on economic reality”)
This creates a deep dilemma within the conduct theory logic of the 2026 framework. The test of economic reality, in cases of second-layer separation, points precisely to that off-chain commercial entity deliberately constructed outside regulatory sight. Conduct theory provided the correct analytical starting point, but when the connection between token and business is structural absence rather than surface fabrication, the gap between the technical difficulty of regulatory penetration and legal standards does not automatically disappear because the point of entry has been switched.
New Forms of Asymmetric Power:
The historical starting point of securities law is a response to a specific power structure: issuers possess information, investors bear risk, and the two exist in structural asymmetry. The core function of securities law has never been to regulate a specific type of financial instrument, but to correct this asymmetry of power.
Crypto assets have not eliminated asymmetric power; they have merely changed its form. In traditional finance, power asymmetry is manifested through equity structures, board control, and disclosure obligations; in the crypto world, the same asymmetry is realized through token distribution mechanisms, code control, narrative capability in roadmaps, and community discourse power. Early investors hold large quantities of low-cost chips, retail investors play the role of liquidity outlets, and this structure differs in no essential way from traditional IPOs, merely wrapped in the narrative shell of decentralization.
This interpretation places regulatory focus on the issuer’s statements and commitments, applying the core logic of the old framework to address the new form of asymmetric power. This choice has its internal rationality: it grasps the most operationable node in the asymmetric relationship — information asymmetry. But what it does not touch is deeper structural power asymmetry. Decentralized technical form does not necessarily bring decentralized power distribution. When regulators accept the narrative of decentralization without scrutinizing the economic reality behind it, regulation itself becomes a mechanism endorsing existing power structures.
What the 2026 framework accomplished is a conscious conversion of regulatory entry points: transitioning from attempting to measure and recognize the technical attributes of tokens to regulating issuer statements and project team business disclosure. This transition has its inevitability, but it rests on an assumption difficult to fully realize in practice: that the technical layer, token layer, and business layer can be cleanly separated by law and handled separately.
A comparative perspective may help recognize the depth of this dilemma. The design logic of regulatory sandboxes (originally proposed and experimentally implemented by the UK Financial Conduct Authority, and subsequently followed by Asian regulators including the Singapore Monetary Authority, Hong Kong Securities and Futures Commission, and Thailand’s Securities Commission) rests on a clear judgment: regulation always lags technology, comprehensive regulation cannot exist before understanding, and therefore limited exemptions exchange for time, and controlled experimentation replaces closed control. This logical choice embraced humility — it acknowledged that regulators’ ability to understand technology’s essence is limited, and chose observation as a substitute for presumptive attribute judgments, delaying the timing of judgment until sufficient experimental data accumulated. The cost of the sandbox framework is systematic coherence; it exchanged the temporary nature of exemptions for an honest attitude toward uncertainty. The 2026 American framework chose a different path. Rather than choosing the experimentation of sandboxes, it chose structural reconstruction, moving regulatory handles from token attributes to human conduct, from technological state to legal relationships. The deeper basis for this choice is a belated confrontation with technological reality: no matter how powerful the narrative of decentralization, in almost any sufficiently complex crypto system, there are centralized nodes that can be reached by regulation. Smart contracts require teams to deploy and maintain; cross-chain bridges in their vast majority of practical forms depend on centralized entities to operate; core parameters in token economics must be designed and adjusted by people, sometimes requiring human emergency intervention. Peirce’s 2020 proposal already embedded this recognition. She used “essential managerial efforts” as the core judgment axis of Howey analysis, rather than the technical form of the system as the judgment standard. Six years later, this recognition was formally confirmed at the institutional level: the existence of behavioral agents is the prerequisite for regulation to be implemented, not the degree of technical decentralization.
However, this transition still fails to resolve several fundamental problems. This is not merely an abstract theoretical omission, but an institutional gap with direct legal consequences in specific situations. For projects operated by completely anonymous teams, the logic of accountability for “statements and commitments” lacks an identifiable subject; for protocols governed by DAO forms, dispersed voting mechanisms make “who made the commitment” itself a question to be answered; for networks where the original development team dissolved after token issuance, the baseline relationship for commitment fulfillment has already broken. Regulation accomplished the epistemological shift from attribute theory to conduct theory, yet in identifying behavioral agents themselves, faces uncertainties as profound as before. Switching entry points does not equate to solving the problem being entered; it merely replaces one set of difficulties with a new set.
The Temporality of Investment Contracts:
The most legally original part of this interpretation is its systematic exposition of investment contract “termination.”
Traditional legal thinking tends to view contractual relationships as static: once established, rights and obligations remain fixed until the contract explicitly terminates. The regulatory logic of the Gensler era was precisely this: once determined to be a security, it is always a security; issuers must perpetually bear compliance obligations.
This interpretation introduces a dynamic temporal dimension: investment contracts can naturally terminate because the issuer fulfilled its commitments, or can be nullified because the issuer clearly cannot or will not fulfill them. Behind this lies an important jurisprudential judgment: the essence of an investment contract is not a formal contract but a relationship of reasonable expectations. When reasonable expectations no longer exist, the rationale for the investment contract’s existence also disappears.
This judgment deepens rather than departs from the spirit of the Howey test. Howey’s original intent was never to permanently label a certain class of assets with a fixed tag, but to capture a specific economic relationship — investors entrust money to others, expecting to benefit from their efforts. When this relationship no longer exists, the necessity for legal protection naturally weakens.
The problem is: who determines whether reasonable expectations “no longer exist”? This interpretation largely leaves this judgment to the self-perception of market participants, which will produce considerable uncertainty in practice. The tension between legal clarity and dynamic adaptability is not resolved here, only acknowledged.
The divergence between Peirce and Atkins frameworks on termination standards is most profound, and the direction of this divergence reveals a larger regulatory philosophy choice. Peirce’s 2020 proposal used objective technological state as the termination trigger condition — at the conclusion of three years, evaluate whether the network reached decentralization or functionality, with standards being externally observable and verifiable. Atkins’ 2026 proposal abandoned this objective technological test, turning to commitment-driven contractual relationship logic: termination occurs when “the issuer completes its express essential managerial efforts and publicly discloses this fact.” The time point is no longer exogenous but endogenously determined by the commitment content itself.
The regulatory logic behind this evolution is clear: technological maturity is extremely difficult to confirm in practice, decentralization is a continuous spectrum rather than a binary state, and project teams can strategically delay satisfying objective standards. The commitment fulfillment standard shifts the focus of judgment to more observable dimensions. But its cost is equally clear: it significantly delegates the power to define the scope of “essential managerial efforts” to the issuer itself. An issuer that carefully designs the wording of its commitments can largely self-determine the status of the investment contract’s continuance — not through completing substantial work, but through controlling the formal boundaries of commitments. Regulatory operability is enhanced, while regulatory substantive penetration may actually decline in certain circumstances.
Constitutional Tension Between Rules and Enforcement:
The very method of publishing this interpretation carries important constitutional implications.
It is an interpretive rule, not formal legislation. This means it need not undergo congressional review and can take effect immediately, but also means it can be easily rescinded by the next administration. The enforcement judgment-based regulatory system established during the Gensler era is now negated by an interpretive document; yet this interpretive document itself faces the same instability.
This reveals a long-standing structural dilemma in American administrative law: when legislative bodies cannot respond timely to technological change, administrative efforts to fill the gap are destined to be fragile. Substituting enforcement for legislation is a distortion, just as substituting interpretation for legislation is a distortion, only in the opposite direction.
True regulatory stability requires legislative authorization at the congressional level. This interpretation positions itself as a “bridge” for congressional legislation, and this self-positioning is honest. But a bridge is not an end point; whether genuine predictable regulatory frameworks can be built upon the bridge depends on whether the legislative process can keep pace with technological evolution. This has historically never been a proposition supporting optimism.
On the same day, Atkins announced that within weeks he would propose three rules: a startup exemption providing up to four years of registration exemption with funding caps around five million dollars; a funding exemption allowing approximately seventy-five million dollars in fundraising within twelve months with additional financial information disclosure requirements; and an investment contract safe harbor providing a rule-based exit from the securities definition after the issuer completes or permanently ceases all essential managerial efforts. These three proposed rules represent the formal institutionalization path of Peirce’s 2020 Token Safe Harbor proposal six years later. If passed through formal rulemaking procedures, their legal force will exceed the current interpretive rule and become an intra-institutional path for addressing constitutional fragility.
However, the attainment of institutional stability comes with a cost that is almost overlooked.
The three-layer exemption structure in design intent attempts to cover entrepreneurs of different scales: five million dollar caps correspond to earliest-stage technological exploration, seventy-five million dollars to already-scaled fundraising needs, and safe harbor exits to mature projects nearing commitment fulfillment. The layered motivation mirrors Peirce’s 2020 draft inspiration. She explicitly criticized in “Running on Empty” the squeezing-out effect on smaller-scale project teams from “mini-IPO” compliance costs under Regulation A, and the limitations of qualified investor restrictions under Regulation D on network-wide distribution. The design motivation of Token Safe Harbor was precisely to provide an alternative path for grassroots entrepreneurs excluded by existing compliance frameworks.
But the multi-layer exemption structure itself is a complexity-production machine, with complexity increasing non-linearly as layers increase. Where is the condition boundary transitioning from the first to second layer? How should cascading effects of simultaneous reliance on multiple exemptions be managed? How do scope definitions of “essential managerial efforts” affect safe harbor trigger timing? Answers to these questions can typically only be precisely grasped by institutional participants with sufficient legal resources.
There exists an institutional paradox here, and it is one repeatedly appearing in institutional design history. Regulatory clarity is meant to reduce uncertainty and encourage innovation, but the more refined the rules, the more complex compliance becomes, and the more regulatory operability trends toward institutionalized participants with existing resources. Entrepreneurs need to understand the applicability boundaries of multi-layer exemption conditions, distinguish specific disclosure obligation differences under different fundraising scales, track the cascading effects of registration triggers and state-level requirements, and with lawyer assistance determine which commitments qualify as “express essential managerial efforts” triggering safe harbors and which are merely strategic expression of intention without legal obligation. This is a compliance system requiring considerable professional competence and resources to operably navigate, and its navigation cost is precisely what these participants most needing regulatory clarity find most burdensome to bear.
Ultimately, those truly benefiting from regulatory clarity may be exactly those participants who could already survive within the old framework: large crypto institutions, exchanges with compliance teams, mature projects capable of bearing legal fees. True grassroots entrepreneurs were troubled by regulatory uncertainty in the Gensler era; in the Atkins era they may be sidelined by compliance complexity. Regulatory clarity reduces market-wide uncertainty but distributes the gains unevenly to already-uneven participant groups. This question is almost never directly questioned in policy discussion, for it requires regulators to acknowledge: the beneficiaries of regulatory reform are not always the people regulatory reform claims to serve.
Conclusion: Legal Humility and Arrogance:
Legal philosophy has a classical proposition: law should not attempt to regulate what it cannot understand. This is legal humility.
But law also has another tradition: it must respond to power asymmetries in reality, even if it knows little about technical details. This is legal responsibility.
This interpretation chose a specific balance between the two: acknowledging the technical particularity of most crypto assets, constructing dynamic classification frameworks rather than forcibly petrifying asset attributes, and focusing instead on observable, accountable human conduct — statements, commitments, disclosure, fraud.
This choice is humble at the technical level and forceful at the normative level. It does not pretend to understand all blockchain possibilities, but insists: regardless of how technological forms change, anyone soliciting trust and funds from others bears an obligation to speak truth.
However, this humility also has its specific limits. In acknowledging its inability to understand technology, law quietly assumes it can understand expectations, assumes reasonable expectations can be completely captured through written commitments, assumes economic reality can be adequately represented through disclosure documents, assumes investment contract termination can be clearly triggered by public declaration of fulfilled conduct. Yet reasonable expectations in token markets often form from the combined workings of community culture, opinion leader narratives, price movements, and exchange listing decisions, far beyond what several lines of whitepaper commitment can exhaust. Legal humility and legal arrogance do not always point in different directions.
This is perhaps the most basic and irreplaceable thing law can do when confronting technological revolution. But basic does not equal sufficient.
The 1946 Howey decision stated that the definition of investment contract “embodies a flexible, rather than a static, principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.”
Eighty years later, this flexibility remains the best entry point for understanding the 2026 framework. Not because the answers have not changed, but because the same flexibility principle, manipulated by different political wills, can lead to radically different institutional outcomes.
Peirce’s contribution was asking the right question; Atkins’ contribution was providing a more operationally workable answer now. Right questions do not necessarily have right answers, and operable answers are not necessarily closer to substantive justice. This dialogue continues. Who writes its next chapter remains unknown. Perhaps neither regulatory agencies nor entrepreneurs, but a congress that has yet to complete legislation.
コード外：デジタル資産規制の法哲学的転換
Author: Lin Lin
Disclaimer: This article is written by the author of the Web3 Compliance Research Group to share personal research findings and is for readers’ reference and discussion only. It does not constitute any investment advice, nor does it constitute promotion of any virtual currency or related operators. The article was first published on Substack (dt42ai.substack.com).
The Starting Point of the Problem:
Law is always behind technology. But the lag itself is not the problem; the problem lies in the manner of the lag.
Over the past decade, the United States has chosen a specific manner of lagging in its regulation of crypto assets: forcing new phenomena into old frameworks, substituting enforcement for legislation, and replacing rule-setting with case-by-case judgments. The cost of this approach is twofold: it neither truly protects investors nor provides predictable growth space for innovation.
The SEC interpretive rule released on March 17, 2026, represents an explicit correction of this lagging approach. But its significance extends far beyond policy shift; it touches upon a more fundamental legal philosophy question: when the object itself possesses multiple attributes, what should law regulate?
The answer to this question follows a clear intellectual trajectory spanning six years. On February 6, 2020, then-SEC Commissioner Hester Peirce delivered a speech titled “Running on Empty” at the Chicago Blockchain Summit, describing the regulatory dilemma as a self-reinforcing paradox: tokens cannot be widely distributed due to potential securities attributes, yet the network must achieve widespread distribution to achieve decentralization and thus escape securities attributes — what she called “regulatory Catch-22.” This structural paradox is addressed in the 2026 framework six years later through a different logical path: not by giving project teams time to allow technology to naturally mature, but by redefining the boundaries of “investment contract,” shifting regulatory focus from the technical state of the asset to the specific conduct of the issuer.
Atkins directly acknowledged at the summit that the intellectual genealogy of this framework traces directly to Peirce’s 2020 Token Safe Harbor proposal. This is a rare instance of inter-generational institutional transmission in regulatory history: the originator failed to secure adoption, but the successor realized the same policy direction through a different institutional form six years later.
From Attribute Theory to Conduct Theory:
The regulatory logic of traditional securities law is built upon an implicit premise: that the legal object possesses fixed attributes. A contract is either a security or it is not; an instrument is either a stock or it is not. This binary judgment was effective in the industrial age because the attributes of financial instruments remained relatively stable, issuance structures were relatively clear, and rights and obligations were relatively certain.
Crypto assets shatter this premise. The same token can exhibit drastically different economic characteristics in different contexts: it can be a commodity, a collectible, a tool, the subject of an investment contract, or even transition between different roles over time at different points. Attributes are no longer fixed; they are context-dependent, time-sensitive, and relationship-determined.
The core legal contribution of this interpretation lies in establishing a clear separation principle: that a non-securities crypto asset becoming the subject of an investment contract does not mean the asset itself becomes a security. The original formulation of this judgment appeared as early as Peirce’s 2020 critique — she explicitly pointed out that confusing “tokens as the subject of investment contracts” with “the investment contract itself” produced catastrophic consequences, preventing token networks from achieving their intended functions. The 2026 interpretation upgrades this academic-level identification into a formal institutional principle.
The establishment of this principle marks a fundamental shift in regulatory philosophy from attribute theory to conduct theory. What is regulated is no longer the nature of the asset itself, but specific conduct surrounding the asset — the issuer’s statements and commitments, the process by which buyer expectations are formed, the creation and termination of investment contracts. Law no longer asks “what is this,” but rather “in this specific context, who did what, and what reasonable expectations resulted.”
But the problem of separation is not confined to a single level. What Peirce identified was confusion at the legal analysis level: tokens treated as the investment contract itself, rather than the subject of the investment contract. This is the first layer of separation misalignment, a conceptual problem that can be corrected through hermeneutic refinement. The 2026 framework completed such an important legal clarification in this sense.
However, beneath this lies a second layer of separation that is more prevalent in practice and more difficult for legal frameworks to capture: the economic decoupling between tokens and the actual business of project teams. In a considerable number of crypto projects, tokens circulate on-chain, while the project team’s actual business — revenue sources, user acquisition paths, core operational decisions — operates entirely off-chain, with virtually no real economic transmission mechanism to the token. The financial fortunes of token holders do not truly depend on the operation of the on-chain protocol, but rather on the life and death of a commercial entity operating off-chain. This separation is not a technology problem but a business model problem: issuing tokens is a financing tool, establishing business is an independent operational logic, and the two are designed to be separate from the start. Whitepapers can describe ecosystem visions, roadmaps can list technical milestones, but the relationship between these texts and the off-chain activities through which project teams actually generate revenue may never involve any legally binding connection.
The 2026 interpretive rule greatly delegates the power to define the scope of “essential managerial efforts” to the issuer itself: the interpretive rule explicitly states that determining whether an issuer has fulfilled its commitments depends on “how the issuer defines or describes the content of its commitments,” rather than an external, observable, verifiable objective technical standard. The internal logic of this design is understandable — commitment form is the node most easily verified ex post. But when the commitment object itself (the on-chain value of the token) and business reality (the off-chain revenue of the project team) have never had or are extremely thin in transmission mechanisms, formal completeness of commitment language cannot capture the essence of economic reality. An issuer can carefully design the boundaries of its commitments, compliance form can be fully satisfied, while the actual risk exposure of token holders remains exposed to an off-chain commercial entity operating outside regulatory sight. Conduct theory changed the regulatory entry point, but for second-layer separation problems, the legal handles it provides still rest on the assumption that “representations match reality,” an assumption that itself requires verification.
Winston & Strawn’s deep analysis of the Howey test points out that the core of investment contract analysis is “promotional emphasis” — whether the issuer objectively guided purchasers to view their purchase as investment rather than consumption, with judgment standards being examination of “economic reality” rather than technical architecture. (Tcherepnin v. Knight, 389 U.S. 332, 336: “form should be disregarded for substance and the emphasis should be on economic reality”)
This creates a deep dilemma within the conduct theory logic of the 2026 framework. The test of economic reality, in cases of second-layer separation, points precisely to that off-chain commercial entity deliberately constructed outside regulatory sight. Conduct theory provided the correct analytical starting point, but when the connection between token and business is structural absence rather than surface fabrication, the gap between the technical difficulty of regulatory penetration and legal standards does not automatically disappear because the point of entry has been switched.
New Forms of Asymmetric Power:
The historical starting point of securities law is a response to a specific power structure: issuers possess information, investors bear risk, and the two exist in structural asymmetry. The core function of securities law has never been to regulate a specific type of financial instrument, but to correct this asymmetry of power.
Crypto assets have not eliminated asymmetric power; they have merely changed its form. In traditional finance, power asymmetry is manifested through equity structures, board control, and disclosure obligations; in the crypto world, the same asymmetry is realized through token distribution mechanisms, code control, narrative capability in roadmaps, and community discourse power. Early investors hold large quantities of low-cost chips, retail investors play the role of liquidity outlets, and this structure differs in no essential way from traditional IPOs, merely wrapped in the narrative shell of decentralization.
This interpretation places regulatory focus on the issuer’s statements and commitments, applying the core logic of the old framework to address the new form of asymmetric power. This choice has its internal rationality: it grasps the most operationable node in the asymmetric relationship — information asymmetry. But what it does not touch is deeper structural power asymmetry. Decentralized technical form does not necessarily bring decentralized power distribution. When regulators accept the narrative of decentralization without scrutinizing the economic reality behind it, regulation itself becomes a mechanism endorsing existing power structures.
What the 2026 framework accomplished is a conscious conversion of regulatory entry points: transitioning from attempting to measure and recognize the technical attributes of tokens to regulating issuer statements and project team business disclosure. This transition has its inevitability, but it rests on an assumption difficult to fully realize in practice: that the technical layer, token layer, and business layer can be cleanly separated by law and handled separately.
A comparative perspective may help recognize the depth of this dilemma. The design logic of regulatory sandboxes (originally proposed and experimentally implemented by the UK Financial Conduct Authority, and subsequently followed by Asian regulators including the Singapore Monetary Authority, Hong Kong Securities and Futures Commission, and Thailand’s Securities Commission) rests on a clear judgment: regulation always lags technology, comprehensive regulation cannot exist before understanding, and therefore limited exemptions exchange for time, and controlled experimentation replaces closed control. This logical choice embraced humility — it acknowledged that regulators’ ability to understand technology’s essence is limited, and chose observation as a substitute for presumptive attribute judgments, delaying the timing of judgment until sufficient experimental data accumulated. The cost of the sandbox framework is systematic coherence; it exchanged the temporary nature of exemptions for an honest attitude toward uncertainty. The 2026 American framework chose a different path. Rather than choosing the experimentation of sandboxes, it chose structural reconstruction, moving regulatory handles from token attributes to human conduct, from technological state to legal relationships. The deeper basis for this choice is a belated confrontation with technological reality: no matter how powerful the narrative of decentralization, in almost any sufficiently complex crypto system, there are centralized nodes that can be reached by regulation. Smart contracts require teams to deploy and maintain; cross-chain bridges in their vast majority of practical forms depend on centralized entities to operate; core parameters in token economics must be designed and adjusted by people, sometimes requiring human emergency intervention. Peirce’s 2020 proposal already embedded this recognition. She used “essential managerial efforts” as the core judgment axis of Howey analysis, rather than the technical form of the system as the judgment standard. Six years later, this recognition was formally confirmed at the institutional level: the existence of behavioral agents is the prerequisite for regulation to be implemented, not the degree of technical decentralization.
However, this transition still fails to resolve several fundamental problems. This is not merely an abstract theoretical omission, but an institutional gap with direct legal consequences in specific situations. For projects operated by completely anonymous teams, the logic of accountability for “statements and commitments” lacks an identifiable subject; for protocols governed by DAO forms, dispersed voting mechanisms make “who made the commitment” itself a question to be answered; for networks where the original development team dissolved after token issuance, the baseline relationship for commitment fulfillment has already broken. Regulation accomplished the epistemological shift from attribute theory to conduct theory, yet in identifying behavioral agents themselves, faces uncertainties as profound as before. Switching entry points does not equate to solving the problem being entered; it merely replaces one set of difficulties with a new set.
The Temporality of Investment Contracts:
The most legally original part of this interpretation is its systematic exposition of investment contract “termination.”
Traditional legal thinking tends to view contractual relationships as static: once established, rights and obligations remain fixed until the contract explicitly terminates. The regulatory logic of the Gensler era was precisely this: once determined to be a security, it is always a security; issuers must perpetually bear compliance obligations.
This interpretation introduces a dynamic temporal dimension: investment contracts can naturally terminate because the issuer fulfilled its commitments, or can be nullified because the issuer clearly cannot or will not fulfill them. Behind this lies an important jurisprudential judgment: the essence of an investment contract is not a formal contract but a relationship of reasonable expectations. When reasonable expectations no longer exist, the rationale for the investment contract’s existence also disappears.
This judgment deepens rather than departs from the spirit of the Howey test. Howey’s original intent was never to permanently label a certain class of assets with a fixed tag, but to capture a specific economic relationship — investors entrust money to others, expecting to benefit from their efforts. When this relationship no longer exists, the necessity for legal protection naturally weakens.
The problem is: who determines whether reasonable expectations “no longer exist”? This interpretation largely leaves this judgment to the self-perception of market participants, which will produce considerable uncertainty in practice. The tension between legal clarity and dynamic adaptability is not resolved here, only acknowledged.
The divergence between Peirce and Atkins frameworks on termination standards is most profound, and the direction of this divergence reveals a larger regulatory philosophy choice. Peirce’s 2020 proposal used objective technological state as the termination trigger condition — at the conclusion of three years, evaluate whether the network reached decentralization or functionality, with standards being externally observable and verifiable. Atkins’ 2026 proposal abandoned this objective technological test, turning to commitment-driven contractual relationship logic: termination occurs when “the issuer completes its express essential managerial efforts and publicly discloses this fact.” The time point is no longer exogenous but endogenously determined by the commitment content itself.
The regulatory logic behind this evolution is clear: technological maturity is extremely difficult to confirm in practice, decentralization is a continuous spectrum rather than a binary state, and project teams can strategically delay satisfying objective standards. The commitment fulfillment standard shifts the focus of judgment to more observable dimensions. But its cost is equally clear: it significantly delegates the power to define the scope of “essential managerial efforts” to the issuer itself. An issuer that carefully designs the wording of its commitments can largely self-determine the status of the investment contract’s continuance — not through completing substantial work, but through controlling the formal boundaries of commitments. Regulatory operability is enhanced, while regulatory substantive penetration may actually decline in certain circumstances.
Constitutional Tension Between Rules and Enforcement:
The very method of publishing this interpretation carries important constitutional implications.
It is an interpretive rule, not formal legislation. This means it need not undergo congressional review and can take effect immediately, but also means it can be easily rescinded by the next administration. The enforcement judgment-based regulatory system established during the Gensler era is now negated by an interpretive document; yet this interpretive document itself faces the same instability.
This reveals a long-standing structural dilemma in American administrative law: when legislative bodies cannot respond timely to technological change, administrative efforts to fill the gap are destined to be fragile. Substituting enforcement for legislation is a distortion, just as substituting interpretation for legislation is a distortion, only in the opposite direction.
True regulatory stability requires legislative authorization at the congressional level. This interpretation positions itself as a “bridge” for congressional legislation, and this self-positioning is honest. But a bridge is not an end point; whether genuine predictable regulatory frameworks can be built upon the bridge depends on whether the legislative process can keep pace with technological evolution. This has historically never been a proposition supporting optimism.
On the same day, Atkins announced that within weeks he would propose three rules: a startup exemption providing up to four years of registration exemption with funding caps around five million dollars; a funding exemption allowing approximately seventy-five million dollars in fundraising within twelve months with additional financial information disclosure requirements; and an investment contract safe harbor providing a rule-based exit from the securities definition after the issuer completes or permanently ceases all essential managerial efforts. These three proposed rules represent the formal institutionalization path of Peirce’s 2020 Token Safe Harbor proposal six years later. If passed through formal rulemaking procedures, their legal force will exceed the current interpretive rule and become an intra-institutional path for addressing constitutional fragility.
However, the attainment of institutional stability comes with a cost that is almost overlooked.
The three-layer exemption structure in design intent attempts to cover entrepreneurs of different scales: five million dollar caps correspond to earliest-stage technological exploration, seventy-five million dollars to already-scaled fundraising needs, and safe harbor exits to mature projects nearing commitment fulfillment. The layered motivation mirrors Peirce’s 2020 draft inspiration. She explicitly criticized in “Running on Empty” the squeezing-out effect on smaller-scale project teams from “mini-IPO” compliance costs under Regulation A, and the limitations of qualified investor restrictions under Regulation D on network-wide distribution. The design motivation of Token Safe Harbor was precisely to provide an alternative path for grassroots entrepreneurs excluded by existing compliance frameworks.
But the multi-layer exemption structure itself is a complexity-production machine, with complexity increasing non-linearly as layers increase. Where is the condition boundary transitioning from the first to second layer? How should cascading effects of simultaneous reliance on multiple exemptions be managed? How do scope definitions of “essential managerial efforts” affect safe harbor trigger timing? Answers to these questions can typically only be precisely grasped by institutional participants with sufficient legal resources.
There exists an institutional paradox here, and it is one repeatedly appearing in institutional design history. Regulatory clarity is meant to reduce uncertainty and encourage innovation, but the more refined the rules, the more complex compliance becomes, and the more regulatory operability trends toward institutionalized participants with existing resources. Entrepreneurs need to understand the applicability boundaries of multi-layer exemption conditions, distinguish specific disclosure obligation differences under different fundraising scales, track the cascading effects of registration triggers and state-level requirements, and with lawyer assistance determine which commitments qualify as “express essential managerial efforts” triggering safe harbors and which are merely strategic expression of intention without legal obligation. This is a compliance system requiring considerable professional competence and resources to operably navigate, and its navigation cost is precisely what these participants most needing regulatory clarity find most burdensome to bear.
Ultimately, those truly benefiting from regulatory clarity may be exactly those participants who could already survive within the old framework: large crypto institutions, exchanges with compliance teams, mature projects capable of bearing legal fees. True grassroots entrepreneurs were troubled by regulatory uncertainty in the Gensler era; in the Atkins era they may be sidelined by compliance complexity. Regulatory clarity reduces market-wide uncertainty but distributes the gains unevenly to already-uneven participant groups. This question is almost never directly questioned in policy discussion, for it requires regulators to acknowledge: the beneficiaries of regulatory reform are not always the people regulatory reform claims to serve.
Conclusion: Legal Humility and Arrogance:
Legal philosophy has a classical proposition: law should not attempt to regulate what it cannot understand. This is legal humility.
But law also has another tradition: it must respond to power asymmetries in reality, even if it knows little about technical details. This is legal responsibility.
This interpretation chose a specific balance between the two: acknowledging the technical particularity of most crypto assets, constructing dynamic classification frameworks rather than forcibly petrifying asset attributes, and focusing instead on observable, accountable human conduct — statements, commitments, disclosure, fraud.
This choice is humble at the technical level and forceful at the normative level. It does not pretend to understand all blockchain possibilities, but insists: regardless of how technological forms change, anyone soliciting trust and funds from others bears an obligation to speak truth.
However, this humility also has its specific limits. In acknowledging its inability to understand technology, law quietly assumes it can understand expectations, assumes reasonable expectations can be completely captured through written commitments, assumes economic reality can be adequately represented through disclosure documents, assumes investment contract termination can be clearly triggered by public declaration of fulfilled conduct. Yet reasonable expectations in token markets often form from the combined workings of community culture, opinion leader narratives, price movements, and exchange listing decisions, far beyond what several lines of whitepaper commitment can exhaust. Legal humility and legal arrogance do not always point in different directions.
This is perhaps the most basic and irreplaceable thing law can do when confronting technological revolution. But basic does not equal sufficient.
The 1946 Howey decision stated that the definition of investment contract “embodies a flexible, rather than a static, principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.”
Eighty years later, this flexibility remains the best entry point for understanding the 2026 framework. Not because the answers have not changed, but because the same flexibility principle, manipulated by different political wills, can lead to radically different institutional outcomes.
Peirce’s contribution was asking the right question; Atkins’ contribution was providing a more operationally workable answer now. Right questions do not necessarily have right answers, and operable answers are not necessarily closer to substantive justice. This dialogue continues. Who writes its next chapter remains unknown. Perhaps neither regulatory agencies nor entrepreneurs, but a congress that has yet to complete legislation.