SEC Chairman Atkins’ Project Crypto Remarks: Why DeFi Startups Still Need Token Analysis, Even as Howey Evolves
For startup founders and innovators operating in the decentralized finance (DeFi) space, recent remarks by SEC Chairman Paul S. Atkins on “Project Crypto” signal a long-awaited, more nuanced regulatory posture toward digital assets. Delivered at the Federal Reserve Bank of Philadelphia on November 12, 2025, Chairman Atkins’ address clarified the SEC’s future direction, anchored in legal tradition, economic substance, and a pragmatic approach to innovation.
Yet despite this progress, one message remains unambiguous: Howey still applies, fraud is still fraud, and the need for individualized token analysis has never been greater. For DeFi founders navigating the legal grey zone between utility and investment, the new regulatory tone offers both opportunity and risk.
This article explores the critical takeaways from “Project Crypto” for startup innovators, emphasizing the necessity of a comprehensive legal review of token models and the importance of compliance at every stage of development.
The Persistent Relevance of the Howey Test
Howey Still Applies, Even in Web3
Chairman Atkins reaffirmed the centrality of the Howey test in determining whether a crypto asset is a security. This 1946 Supreme Court standard remains the benchmark: a transaction is a security if it involves an investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others.
This is not merely a technical matter. If a token qualifies under Howey, it falls under the SEC’s jurisdiction and becomes subject to a host of disclosure, registration, and compliance obligations. While Atkins recognized that investment contracts can end and tokens may evolve out of that status the initial classification has profound legal implications.
Key Point for Founders: If your DeFi protocol raises funds by issuing tokens with promises of future returns or active development by a central team, the Howey test likely applies. Whether your asset remains a security is a question of fact, but ignoring Howey is a perilous strategy.
The SEC’s Evolving Taxonomy: Classifications Matter
Recognizing Functional Distinctions in Digital Assets
Chairman Atkins outlined a token taxonomy that distinguishes among various types of crypto assets:
Digital Commodities/Network Tokens: Assets tied to decentralized, functional networks with no profit expectation from others’ efforts.
Digital Collectibles: NFTs and other items bought for personal use, not investment.
Digital Tools: Utility tokens that serve practical functions like access, authentication, or credentials.
Tokenized Securities: Digital representations of traditional financial instruments (e.g., equity, debt).
Implication for Startups: The SEC is moving away from a one-size-fits-all approach but it still requires accurate classification backed by legal analysis.
Why Token Labels Aren’t Enough
Calling your token a “utility token,” “NFT,” or “governance token” is not determinative. As Chairman Atkins emphasized, economic reality trumps marketing labels. Courts and regulators will look at how your token is actually used and promoted, not what you name it.
Startup Tip: Have your legal counsel conduct a robust, facts-and-circumstances-based review of your token model and all related marketing, documentation, and platform functionality.
Investment Contracts Can End but Must Be Accounted For
Maturity of the Network Can Shift the Regulatory Lens
In a pivotal clarification, Atkins emphasized that investment contracts can terminate. A token might begin life as part of a capital raise and later become a non-security once the original issuer’s role is diminished and the network is functionally decentralized.
But this “maturation” doesn’t occur automatically. Nor does it absolve founders from disclosing initial promises or representations made during a token sale.
Founders Must Consider:
Have all representations tied to the token sale been fulfilled or terminated?
Is there still reliance on the core team for network functionality?
Has control dispersed to a DAO or other decentralized governance?
Without clear answers and documentation, regulatory risk persists even if your network is years old.
Fraud Is Still Fraud: No Safe Harbor for Bad Actors
Enforcement Priorities Remain Unchanged
Chairman Atkins was explicit: the evolution of SEC policy on token classification does not mean relaxed enforcement. Fraudulent offerings, misrepresentations, or misuse of investor funds will continue to face aggressive scrutiny.
Critical Reminder: Even if a token is not a security, federal and state anti-fraud laws still apply, including:
SEC anti-fraud provisions under Rule 10b-5
Commodity Exchange Act provisions enforced by the CFTC
State consumer protection laws
This means that statements in whitepapers, social media promotions, Discord groups, and token launch documentation can and will be used as evidence in enforcement actions.
Startups must maintain:
Transparent disclosures
Internal controls on fund use
Verifiable proof of network development
The Necessity of a Token Analysis for Every DeFi Project
Why Legal Review Is No Longer Optional
The most important takeaway from “Project Crypto” for DeFi founders is simple: you need a legal analysis of your token model before launch, during token generation, and post-launch.
This is not merely about risk mitigation. A well-structured token opinion:
Facilitates banking relationships and exchange listings
Helps attract institutional investment
Provides safe harbor in the event of an SEC inquiry
Supports international compliance strategies
Internal Strategy Tip: Integrate legal counsel into your product development lifecycle. Tokenomics, vesting schedules, DAO structuring, and marketing language must all align with your legal framework. Token legal review is not a one-time exercise, it’s a continuous compliance strategy.
Moving Forward: Regulation with Integrity and Intelligibility
Chairman Atkins’ remarks represent a turning point in U.S. digital asset regulation. “Project Crypto” embraces three core principles:
Integrity: Commitment to legal clarity and rule of law.
Intelligibility: Clear distinctions between asset types and their legal treatment.
Pragmatism: Recognizing when investment contracts end and networks evolve.
This framework opens doors for responsible innovation. But it does not eliminate the need for compliance. Startups cannot rely on regulatory trends or speeches as a substitute for customized legal guidance.
Conclusion: Build Boldly, But Build Legally
Startup innovators in DeFi face a critical moment. With regulators adopting a more sophisticated view of digital assets, the potential for U.S.-based innovation is real—but only for those who build within the legal framework.
A token analysis is not just a legal opinion—it’s a strategic necessity. It informs your funding structure, product architecture, community engagement, and long-term viability.
For DeFi founders, now is the time to:
Commission a detailed securities law analysis of your token
Review your whitepaper, marketing, and user documentation
Prepare a post-launch compliance roadmap
Assess whether your token can eventually “graduate” from investment contract status
Schedule a Token Analysis Today
To explore whether your digital asset offering complies with federal securities laws or to determine if your token may no longer qualify as a security contact our team at 786.461.1617 to schedule a consultation.
We help startups structure legally compliant token offerings that align with the SEC’s evolving guidance, reducing risk and maximizing growth potential.
