Utility claims cannot be used as a shield for crypto assets or exchanges to escape the purview of securities regulations.
That's according to U.S. Securities and Exchange Commission (SEC) chief Gary Gensler who recently spoke at the Piper Sandler Global Exchange and FinTech Conference.
The comments come on the heels of the SEC's crackdown on cryptocurrency exchanges Coinbase (NASDAQ: COIN) and Binance, and whether they're trading unregistered securities.
Gensler articulated that mere claims by promoters about crypto assets having functionalities beyond investments do not exclude them from being classified as securities.
"Some additional utility does not remove a crypto asset security from the definition of an investment contract," he stated.
However, he did concede that tokens created solely for utilization within specific blockchain ecosystems could potentially be exempt from such classification.
Gensler also defended the SEC's latest enforcement actions.
Market participants in the crypto sector cannot plead ignorance or claim a lack of fair notice concerning the legal implications of their conduct.
He suggested that some entities might have knowingly taken on the risk of facing regulatory action as a calculated business decision.
Refuting claims that compliance is unachievable for crypto platforms, Gensler asserted that compliance is indeed possible and has been achieved in the past.
He acknowledged that while compliance may require effort, it cannot be circumvented by simply engaging in discussions with the SEC without a genuine willingness to adapt and adhere to securities laws.
Meanwhile, Gensler shed light on the plethora of guidelines the SEC has issued over the years to token projects and intermediaries, to establish clarity on what qualifies as a crypto asset security.
He emphasized that this information was available to market players even before his tenure began at the SEC.
SEC provided extensive guidelines to those participating in the market, such as the DAO report from 2017, and the staff's 'Framework for Investment Contract Analysis of Digital Assets' in 2019.
More than 100 orders from the Commission, amicable resolutions, and judicial verdicts have solidified the understanding of when a token's offer or sale has been deemed a security, including in cases against Telegram, LBRY, and Kik.