Digital Commodities Under the SEC’s New Framework: What “Functional” Really Means for Founders
The SEC’s new token taxonomy gives crypto founders, CFOs, and digital asset businesses a more useful framework than the market has had for years. Instead of treating every token as a generic securities-law problem, the Commission now identifies a category of crypto assets it calls digital commodities and places that category on the non-security side of its framework. In the SEC’s fact sheet and interpretive release, digital commodities are described as crypto assets intrinsically linked to the programmatic operation of a functional crypto system, with value driven by that system and by supply-and-demand dynamics rather than by the expectation of profits from the essential managerial efforts of others.
For founders, that is a meaningful shift. But it is not a shortcut.
The practical issue is no longer whether a team can describe its token as a utility asset in a pitch deck or token page. The real issue is whether the token is actually necessary to participate in, use, secure, coordinate, or govern a live system. If the answer is no, the label will do very little work. If the answer is yes, the company still needs its token economics, governance design, launch sequencing, and public messaging to match that operational reality.
What the SEC means by a digital commodity
The SEC’s fact sheet places digital commodities in the “not securities” bucket. The release defines a digital commodity as a crypto asset tied to the programmatic operation of a crypto system that is “functional,” together with supply-and-demand dynamics, rather than the expectation of profits from the essential managerial efforts of others. The release also makes clear that a digital commodity does not carry intrinsic economic rights such as passive yield or rights to future income, profits, or assets of a business enterprise, even though it may carry technical or governance rights inside the system.
That distinction matters because it separates tokens that are part of a working crypto system from tokens that function more like financial claims on a promoter, issuer, or enterprise. In the SEC’s framework, a digital commodity is supposed to be embedded in the operation of the system itself. It is not meant to be a disguised equity substitute, a yield instrument, or a profit-sharing claim with technical language wrapped around it.
The SEC also provides examples of assets it views as digital commodities as of the release date, including Bitcoin, Ether, Solana, Avalanche, Cardano, Litecoin, Polkadot, XRP, Chainlink, and others. That list is useful context, but the more important point for founders is the Commission’s reasoning, not the ticker symbols.
“Functional” is now the word that matters
For most token teams, the most important word in this portion of the release is not commodity. It is functional.
The SEC says a crypto system is “functional” if its native crypto asset can be used on the system in accordance with the programmatic utility of that system. That definition is more important than it may look at first glance because it pushes the analysis away from future promises and toward present use. Functionality is not about what a team hopes the token will do after another year of roadmap execution. It is about whether the token can actually be used now for the role the team says it is supposed to play.
That should change how founders think about launch sequencing. If a project wants to claim digital commodity treatment, it should expect regulators, investors, counterparties, and exchanges to ask straightforward questions. What does the token do today? Is it native to the system? Is the system live? Is the token actually required for participation, validation, coordination, governance, fees, or another real programmatic function? Or is the token’s value proposition still built primarily on the idea that the team will make it useful later?
This is where many token projects still create avoidable risk. They describe an asset as functional long before the system is meaningfully operational. In that situation, the legal narrative and the product reality begin to drift apart.
What digital commodities are supposed to do
The SEC does more than define the category. It also explains what a digital commodity is supposed to do inside a crypto system.
According to the release, a digital commodity is necessary to participate in or use aspects of an associated functional crypto system. Its programmed purpose may include facilitating and incentivizing transaction validation, ordering, and confirmation, maintaining the functioning or security of the system, and fostering network effects. The SEC also notes that digital commodities often convey technical rights, such as allowing holders to participate in a system’s consensus mechanism through staking or lockups, and may also include governance rights, such as voting on software upgrades or treasury expenditures. In some systems, users may also be required to pay gas fees in the native digital commodity.
That gives founders a much more practical framework than the old catch-all “utility token” language. A digital commodity should not merely sit adjacent to a protocol. It should do real work inside the protocol.
That means the strongest cases tend to involve tokens genuinely tied to network participation, security, validation, transaction processing, or governance. The weaker cases are the ones where the token exists primarily to capture speculative interest, is not really required for system participation, and is marketed around the idea that the team’s future execution will drive appreciation.
Why the SEC says digital commodities are not securities
The SEC’s reasoning is relatively direct. A digital commodity, as described in the release, is not itself a security because it does not have the economic characteristics of one of the instruments enumerated in the federal securities laws. The release says a digital commodity does not represent a digitized form of stock, a note, an investment contract, or another enumerated security. Instead, its value is tied to the goods and services that may be produced or accessed using that commodity, together with supply-and-demand dynamics.
The SEC also emphasizes that a functional crypto system incorporates economic mechanisms that reward voluntary cooperation and coordination among users, rather than relying on a central party to oversee participation or distribute rewards. That is a major part of the Commission’s framing. The more the system works because of live protocol design and actual operation, the easier it is to argue that users are interacting with a functioning network rather than investing in a managerial enterprise.
For founders, the takeaway is not that decentralization slogans are enough. The takeaway is that the SEC is looking for actual system design and present functionality. If the project still depends on a central team creating value through ongoing essential managerial efforts, the company may still face securities-law exposure even if the token performs some technical function.
The real risk: a non-security token can still be sold as part of an investment contract
This is where many teams get caught flat-footed.
The SEC’s broader release makes clear that even a non-security crypto asset can become subject to an investment contract when an issuer induces an investment of money in a common enterprise through representations or promises to undertake essential managerial efforts from which purchasers would reasonably expect profits. The fact sheet highlights the same point: the taxonomy does not eliminate investment-contract analysis just because an asset itself falls into a non-security category.
That means a token can be a non-security crypto asset in theory and still be marketed, distributed, or sold in a way that creates securities-law risk in practice.
This is why messaging matters so much. The SEC specifically says that purchaser expectations may be shaped through public communications such as websites, official social media, direct communications, regulatory filings, and whitepapers. If a company wants to rely on a digital commodity narrative, but its public materials repeatedly emphasize future appreciation, ecosystem expansion driven by the team, listing upside, or managerial execution, it may undermine its own legal position.
For founders and CFOs, this is not just a legal drafting issue. It is an internal alignment issue. Product design, token economics, investor communications, treasury thinking, and public-facing marketing should not be developed in separate silos. If the product story says one thing and the market story says another, the gap itself can become a problem.
What founders should be documenting now
If a company wants to operate credibly within the digital commodity category, it should begin building a record that supports that position.
That includes documenting the token’s present system role, how and where it is used, whether it is required for protocol-level functionality, how transaction fees work, what governance rights exist, how consensus participation works, and whether the system is actually functional under the SEC’s definition. It also means reviewing whether the token carries any features that look more like passive yield, enterprise rights, or claims on future income or assets. The SEC’s digital commodity framework is useful precisely because it highlights what should not be present.
Companies should also review public statements with care. If the token is meant to fit the digital commodity category, it should be described in operational terms, not speculative ones. The strongest narrative is usually the simplest one: the token is necessary to do a specific job inside a live system. The weaker narrative is the one that constantly points back to what management will do in the future to increase value.
Why this matters for CFOs, boards, and counterparties
This is not only a founder issue. It is also a finance, diligence, and governance issue.
CFOs, controllers, exchanges, custodians, institutional investors, and strategic partners are increasingly likely to use this new SEC framework as part of internal diligence. Once regulators provide a cleaner taxonomy, the market tends to operationalize it. That means claims that a token is a digital commodity are likely to become part of listing reviews, financing diligence, board discussions, and transaction planning.
For companies seeking institutional capital, infrastructure access, or long-term credibility, this matters now. A token strategy that cannot withstand diligence at the classification level is going to face friction everywhere else.
This also fits a broader theme already visible across Veritas Global’s digital asset coverage: legal structure is no longer just a back-end compliance task. It is part of the product and part of the business model. That same theme appears in Veritas Global’s broader discussion of SEC digital asset treatment and in the firm’s tokenization work around compliance-by-design.
Final thoughts
The SEC’s digital commodity category is one of the most useful parts of the new release because it gives founders and finance teams a more practical framework than the market had before. But it also raises the bar. The question is no longer whether a token can be described as useful. The question is whether the token is actually embedded in a functional crypto system and whether the company’s design, economics, governance, and messaging all support that position.
For digital asset businesses, that is the real takeaway. In this new SEC framework, the strongest digital commodity argument is built through live functionality, disciplined product design, and careful communications. Not labels. Not hype. Not future promises standing in for present utility.
At Veritas Global, this is where legal strategy becomes a competitive advantage. Businesses that align token design, launch sequencing, and regulatory positioning early will be better prepared for diligence, financing, exchange engagement, and long-term growth. Firms building in digital assets, tokenization, or crypto-enabled financial infrastructure should treat this framework as a planning tool now, not a defense strategy later.
