The Securities and Exchange Commission (SEC) is the regulatory body charged with overseeing the securities industry in the United States. The SEC has been clear that its mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

In furtherance of these goals, the SEC has adopted a number of rules and regulations related to the offering and sale of securities.

The term “security” is not defined in the Securities Act of 1933 (the “Securities Act”), but the Supreme Court has interpreted it to mean “any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put call option or privilege on any security (including a certificate of deposit), or in general any interest or instrument commonly known as a ‘security’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for exchange for property all as may be defined by rule or regulation of the Commission.”

In July 2017, the SEC released a report concluding that digital tokens issued through initial coin offerings (“ICOs”) are securities and subject to the federal securities lAWS. The report stopped short of declaring all ICOs to be securities offerings, but it made it clear that the SEC would be taking a close look at this new form of fundraising and investor protection would be a paramount concern.

The report was issued in response to an ICO conducted by DAO (a decentralized autonomous organization), which had raised approximately $150 million from investors through the sale of DAO tokens. The SEC found that DAO tokens were securities and that the offering was therefore subject to the federal securities lAWS.

In particular, the SEC found that DAO tokens were sold pursuant to an investment contract and therefore met the definition of a security under Section 2(a)(1) of the Securities Act.

The SEC’s report did not make any specific pronouncements about Ethereum itself. However, given that Ethereum is often used to issue ICO tokens (as was the case with DAO), it is likely that many Ethereum-based ICOs would also be considered securities offerings subject to the federal securities lAWS.

Whether or not Ethereum itself is a security is less clear. Ethereum is decentralized platform that runs on blockchain technology; it is not controlled by any one entity.

As such, it does not appear to meet the definition of a security under Section 2(a)(1) of the Securities Act. However, the SEC has not formally weighed in on this question and it remains possible that they could deem Ethereum to be a security in future guidance or enforcement actions.