Early posts in this blog mentioned how former SEC Chairman Jay Clayton had famously told Congress in February 2018 that “I believe every ICO I’ve seen is a security.”  His successor, Gary Gensler, resurrected those thoughts in his prepared remarks delivered on August 3, 2021 to the Aspen Security Forum:

I think former SEC Chairman Jay Clayton said it well when he testified in 2018: “To the extent that digital assets like [initial coin offerings, or ICOs] are securities — and I believe every ICO I have seen is a security — we have jurisdiction, and our federal securities laws apply.”

I find myself agreeing with Chairman Clayton. You see, generally, folks buying these tokens are anticipating profits, and there’s a small group of entrepreneurs and technologists standing up and nurturing the projects. I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight.

Those familiar with the Howey test that the SEC applies to determine if something is a security will recognize these comments as references to the “expectation of profits” and “from the efforts of others” prongs of that test.

But Chairman Gensler went further than his predecessor, with the following comments about DeFi platforms:

The world of crypto finance now has platforms where people can trade tokens and other venues where people can lend tokens. I believe these platforms not only can implicate the securities laws; some platforms also can implicate the commodities laws and the banking laws.

A typical trading platform has more than 50 tokens on it. In fact, many have well in excess of 100 tokens. While each token’s legal status depends on its own facts and circumstances, the probability is quite remote that, with 50 or 100 tokens, any given platform has zero securities.

Stablecoins did not escape the Chairman’s comments either.  He said they might also be securities and investment companies and thus subject to federal securities laws.

The import of the Chairman’s remarks was that the SEC was going to do even more to fulfill the “protecting investors” part of the SEC mission because the crypto space is like the “wild West.”  In that regard, he said, “We need additional congressional authorities to prevent transactions, products and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector.”


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. David has been included in Chambers for his expertise in international arbitration. He is the editor of the firm's blockchain blog.