The classification of cryptocurrencies is still a matter of debate, and it is likely that there will not be a single answer that applies to all cryptocurrencies. Instead, the classification of each cryptocurrency is likely to depend on its specific characteristics.
The Securities and Exchange Commission (SEC) has taken the position that some cryptocurrencies are securities, while others are commodities. The Commodity Futures Trading Commission (CFTC) has also taken the position that some cryptocurrencies are commodities. The classification of a cryptocurrency as a security or a commodity has important implications for how it can be sold, where it can be listed, and who might sue if an issuer oversteps the mark.
There are a number of factors that regulators consider when determining whether a cryptocurrency is a security. These factors include the purpose of the cryptocurrency, the rights of the token holders, and the level of control that the issuer maintains over the cryptocurrency. If a cryptocurrency is determined to be a security, the issuer and exchange may be subject to a number of regulations, including registration requirements, disclosure requirements, and anti-fraud provisions.
The cryptocurrency industry is constantly evolving, and the regulatory landscape is still being developed. As a result, it is important for cryptocurrency issuers and exchanges to stay up-to-date on the latest regulations and to consult with legal counsel to ensure that they are in compliance.
One way that issuers try to avoid violating securities laws is by decentralizing their projects. If a cryptocurrency is developed in such a way that it is not controlled by any one entity, then it is less likely to be considered a security. This is why many DeFi projects are decentralized, with governance split between decentralized autonomous organizations (DAOs) and other mechanisms like proof-of-stake consensus.
The argument is that if people are both investors and participants in the growth of the project, either by staking the coin and becoming validators, or voting in DAO decisions, then they are no longer solely relying on a third party to produce returns. This makes it less likely that the project will be considered an investment contract, which is what the Howey test looks for.