Securities, Explained

A security is a tradable financial asset — a stock, bond, or derivative — that represents ownership, debt, or a contractual right to future cash flows, and whose issuance and trading is governed by law.

In crypto markets, the question of what is a security has reshaped how assets are created, distributed, and regulated worldwide. Understanding that boundary matters whether you hold tokens, trade on centralized exchanges, or build a protocol.

What Makes Something a Security?

In the United States, the legal test traces back to a 1946 Supreme Court case, SEC v. W.J. Howey Co. The Howey Test asks four questions: Is there (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profit, (4) derived from the efforts of others? If yes, the asset is an investment contract — a type of security — and falls under SEC oversight.

This framework was designed for orange groves and real-estate schemes, not peer-to-peer digital tokens. Its application to crypto has been disputed for over a decade, and that dispute is finally producing formal legislative responses.

Traditional securities fall into several categories:

• Equity securities — company shares conferring ownership and often voting rights.
• Debt securities — bonds and notes representing a loan that must be repaid.
• Derivative securities — options and futures whose value is tied to an underlying asset.
• Hybrid instruments — convertible notes, preferred shares, and — increasingly — tokenized real-world assets (RWAs) that blend on-chain mechanics with off-chain rights.

Benthic

Apr 12, 2026

View article →

Citadel Securities, IMC and Hudson River sit out prediction market boom as compliance risks mount

Bloomberg • Apr 12, 2026

Top Comment

Benthic

Apr 12, 2026

- Major market makers Citadel Securities, IMC Trading and Hudson River Trading have stayed away from prediction markets even as the sector surges to $20B/month in volume, up from $1.2B in 2025 - Susquehanna, DRW and Jump Trading have moved in, building dedicated desks and providing liquidity on platforms like Kalshi, which now controls 89% of the regulated U.S. prediction market - Event contracts pose unique compliance challenges for institutional firms: insider trading exposure on geopolitical bets, unclear regulatory treatment under CFTC rulemaking, and reputational risk from products critics call gambling masquerading as derivatives - Federal prosecutors in Manhattan are already scrutinizing suspicious prediction market wagers, including $170M in Polymarket bets placed ahead of the Iran ceasefire, while class action lawsuits target market maker advantages on Kalshi

The SEC and Crypto: A Long-Running Standoff

The U.S. Securities and Exchange Commission, created by the Securities Act of 1933 and the Securities Exchange Act of 1934, holds jurisdiction over securities issuance and secondary trading within the United States. For most of crypto's history, the agency applied existing statutes rather than issuing dedicated rules, leading to a string of enforcement actions — against initial coin offerings in 2017–2018, against exchanges for listing unregistered securities, and against token issuers for conducting unregistered public offerings.

The most prominent battleground has been Coinbase, which the SEC sued in 2023 arguing that several listed tokens were securities. That case, and parallel actions against Binance and others, have pushed the question of regulatory clarity to the top of the industry's agenda.

A genuine policy shift appears underway. The CLARITY Act, advancing through Congress in 2025–2026, would establish distinct rules for blockchain networks, builders, and digital assets — separating assets that are genuinely decentralized commodities from those that function as investment contracts. Venture firm a16z has described the bill as a potential "1933 Securities Act moment" for crypto: a founding document that replaces enforcement-by-improvisation with durable rules. Whether the analogy holds depends on final legislative text, but the framing captures the stakes.

The SEC itself has also been moving. The agency is reportedly preparing a formal proposal for trading crypto-denominated stocks — essentially securities priced or settled in digital assets rather than dollars — suggesting the boundary between equity markets and crypto markets is blurring from both directions.

Tokenized Securities: Bringing Traditional Assets On-Chain

The most concrete intersection of securities law and crypto is the tokenized security — a digital representation of a traditional financial instrument, issued on a blockchain and subject to the same legal obligations as its off-chain equivalent.

Unlike utility tokens, tokenized securities are explicitly designed to be securities from the start. That clarity cuts both ways: issuers must register or qualify for an exemption, investors receive legal protections, and secondary trading must happen on regulated venues. In exchange, the token format can offer programmable compliance, real-time settlement, fractional ownership, and 24/7 markets.

Recent activity shows the sector maturing rapidly:

Exchanges entering the market. Binance has added bStocks tokenized securities trading pairs on Binance Spot and run promotional campaigns for ONDO tokenized securities, including zero trading fees and zero on-chain gas fees — a significant liquidity subsidy for early adoption. Binance Wallet's SPCXx IPO campaign signals that retail-facing tokenized IPO access is becoming a product category, not a concept.

Infrastructure providers. Archax and Hedera have demonstrated real-time streaming cash flows for tokenized securities — on-chain coupon payments that settle as they accrue rather than on a periodic schedule. Paxos Securities Settlement Company became the first blockchain-native firm registered by the SEC to clear and settle US securities, a structural milestone that removes a major regulatory barrier for on-chain equity settlement.

New asset classes. SurancePlus is launching tokenized reinsurance securities on Solana through HCI Group's Fortex Re program, bringing insurance risk — historically illiquid and opaque — onto a public chain. Prometheum, a registered broker-dealer, is offering services enabling other brokers to provide crypto trading and tokenized securities access.

Asset manager filings. Grayscale filed an S-1 with the SEC to launch an ETF holding Canton Network's native asset, adding to a growing list of institutional-grade on-chain investment products seeking exchange-listed wrappers.

Danicjade

May 15, 2026

View article →

a16z says the CLARITY Act could become crypto’s “1933 Securities Act moment,” creating clear US rules for blockchain networks, builders and digital assets

𝕏/@a16zcrypto • May 15, 2026

Top Comment

Benthic

May 15, 2026

15-9 in Senate Banking after the House went 294-134 means this is past meme-legislation, but the floor fight is where Section 404 stablecoin rewards and Section 604 developer liability get carved up. If the decentralization/common-control test survives, token design starts looking less like “avoid the SEC forever” and more like a graduation path from issuer disclosures to CFTC spot markets. Aave, Morpho, Coinbase and the RWA stack all read that differently: passive USDC yield gets boxed in, activity-based liquidity incentives get more valuable, and open-source teams still need BRCA language tight enough that Tornado/Samourai-style theories don’t sneak back in.

Bitcoin as a Securities-Adjacent Asset Class

Bitcoin occupies a legally distinct position. The SEC has consistently treated BTC as a commodity rather than a security — a view shared by the Commodity Futures Trading Commission. That classification enabled the approval of spot Bitcoin ETFs in the United States in January 2024, creating regulated investment vehicles that hold BTC directly.

The commodity classification has opened a secondary market for BTC-linked yield products: structured instruments that use Bitcoin as collateral or reference asset, but are themselves securities in the traditional sense.

Metaplanet, a Tokyo-listed company often compared to MicroStrategy for its aggressive Bitcoin treasury strategy, illustrates this convergence. The firm announced plans to acquire Siiibo Securities for approximately ¥2.1 billion ($13 million), gaining a licensed securities distribution platform. The acquisition will operate under a Metaplanet Securities brand and support the launch of Bitcoin-linked bonds — debt instruments whose yield or principal is tied to BTC price performance. This structure lets retail investors in Japan gain Bitcoin exposure through a regulated securities framework rather than direct crypto custody.

This pattern — using a securities license as infrastructure for crypto-native products — is likely to spread. Bitcoin's established commodity status makes BTC-linked structured products more straightforward to register than equity-like tokens, while the yield component addresses demand from income-oriented investors who find raw BTC unattractive.

Global Regulatory Divergence

Securities law is national, but crypto markets are not. This mismatch creates both arbitrage opportunities and compliance complexity for globally active participants.

Japan is moving toward explicit alignment. The country's Digital Assets Bill treats certain crypto assets similarly to traditional securities like stocks, imposing disclosure requirements and investor protections. SBI Securities and Rakuten Securities have announced plans to offer crypto investment trusts once rules are finalized, with at least eleven additional major firms — including Nomura, Daiwa, and Mizuho — indicating they would consider entering the market. Samsung Securities separately acquired a 2% stake in Dunamu, the operator of South Korean exchange Upbit, signaling traditional finance's growing appetite for regulated crypto exposure in Asia.

China has taken the opposite approach, announcing severe penalties against US stock trading platforms operating within China and confiscating alleged illegal gains. The crackdown from China's securities regulator (CSRC) may redirect domestic appetite toward CEXs and on-chain US stock trading venues that are harder to restrict, though the long-term effect remains uncertain.

The European Union implemented its Markets in Crypto-Assets (MiCA) regulation across 2024–2025, providing a harmonized licensing framework that distinguishes utility tokens, asset-referenced tokens, and e-money tokens, while leaving security tokens largely under existing securities directives (MiFID II). This creates a clearer path for tokenized security issuers within the EU than the US currently offers, though passporting across all member states is still evolving in practice.

Danicjade

Jun 12, 2026

View article →

Metaplanet set to acquire licensed securities firm Siiibo for $13M to build bitcoin-linked yield products under Metaplanet Securities brand

The Block • Jun 12, 2026

Top Comment

Benthic

Jun 12, 2026

$13M buys Metaplanet a Type I Japanese securities pipe that already sells 2-8% JPY private bonds, with small private bond deals capped at 49 investor candidates. With ~40,177 BTC on the balance sheet and the stock around 0.92x mNAV, the move is about manufacturing yield and distribution after the treasury premium stops doing all the work. The risk is 2022-style shadow leverage in a cleaner wrapper: "bitcoin yield" usually means basis, lending, or structured-note risk, and retail only sees that after the unwind.

Tokenomics as a Securities Signal

The design of a token's economic system — its tokenomics — is increasingly scrutinized as a proxy for whether the asset functions as a security. Citadel Securities' widely circulated "Tokenomics" research note, while focused on AI cost curves rather than crypto, underscores how token-based economic models are entering mainstream financial analysis.

From a regulatory standpoint, several tokenomic features heighten securities risk:

• Vesting schedules for insiders that mirror stock option grants.
• Staking rewards or revenue sharing distributed to token holders, resembling dividends.
• Governance tokens that confer meaningful control over a protocol's treasury or fee distribution.
• Launch mechanics — airdrops to VCs, private sales at discounts, or public sale tranches — that mirror securities offerings in structure.

The practical implication for projects is that purely utility-driven tokens with broad initial distribution and genuinely decentralized governance are safer from a securities classification standpoint than tokens with concentrated insider allocations and promised returns. Whether regulators apply that distinction consistently remains an open question.

Investment Implications

For investors, the securities framework creates both protections and constraints:

Protections: Registered securities come with disclosure requirements — audited financials, material event reporting, insider trading restrictions. Token investors in unregistered offerings have historically had few remedies when projects failed or defrauded them.

Constraints: Securities can only be sold to retail investors after registration or under specific exemptions (Reg D for accredited investors, Reg A+ for smaller public offerings). Secondary trading must occur on registered exchanges or through registered broker-dealers. This limits liquidity for many tokenized instruments, at least in their early stages.

The OKX Ventures example illustrates how traditional finance and crypto are converging at the institutional level: OKX Ventures and Korea Investment & Securities agreed to acquire a $106 million combined stake in Coinone, a Korean exchange. The transaction bundles crypto venture capital with a regulated securities firm's capital, the kind of cross-sector deal that was rare five years ago.

Outlook

The regulatory gap that defined crypto's first fifteen years — assets operating outside the securities framework because the framework was never designed for them — is closing. Legislative clarity in the United States, if the CLARITY Act or similar legislation advances, would remove the single largest source of legal uncertainty for token issuers and exchanges. Japan's proactive alignment and Europe's MiCA implementation suggest a global trend toward treating digital assets as a recognized asset class with its own rules rather than an ungoverned outlier.

Tokenized securities are the clearest near-term growth area: traditional financial assets moving onto public blockchains, bringing settlement efficiency, programmable compliance, and retail accessibility. The infrastructure is being built — licensed settlement firms, exchange trading pairs, real-time cash flow mechanisms — and institutional demand for on-chain versions of stocks, bonds, and alternative assets is rising.

Bitcoin's commodity status creates a parallel track for BTC-linked structured products, allowing regulated yield generation without the securities classification risk that dogs most tokens. Metaplanet's acquisition of a securities firm to issue Bitcoin bonds is a template others will likely follow.

The outstanding risk is fragmentation: if the US, EU, and Asia settle on incompatible definitions of what constitutes a security in digital form, global projects will face the same compliance overhead as multinational banks, without the same legal resources. The next two to three years will determine whether the industry gets coherent rules or a patchwork it must navigate indefinitely.