Eight Years in the Making – ETH is a Commodity

By Selva Ozelli Esq, CPA Author of Sustainably Investing in Digital Assets Globally

On April  29, 2018, I wrote about Ethereum’s (ETH) decentralized nature [quoting a crypto industry founder Dr. Emin Gun Sirer] which qualified ETH as a commodity for US law purposes.    The regulatory uncertainty, regarding whether ETH [and other digital assets] is classified as securities or commodities, has historically been a primary barrier to institutional capital adoption since it created legal risks, complicated custody, and hampered compliance, causing investors to hold back in investing.

Why Ethereum’s (ETH) has finally evolved into a commodity

To remove a major cloud over whether the second most traded digital asset ETH after Bitcoin (BTC) was a  security or a commodity on June 14, 2018, former the Securities Exchange Commission (SEC) Director of Corporation Finance William Hinman suggested that ETH in its current decentralized state did not constitute a security, providing temporary regulatory clarity on its legal classification as a commodity.

Litigation to Determine ETH’s Legal Classification

Nevertheless, in the absence of authoritative regulatory certainty from the SEC or the  Commodity Futures Trading Commission (CFTC), lawsuits challenged whether ETH [and other digital assets] was a regulated security or a commodity.

NYAG vs. KuCoin (2023): The New York Attorney General (NYAG) filed a lawsuit against crypto trading platform KuCoin a major global cryptocurrency exchange serving over 40 million users in more than 200 countries with a massive selection of over 1,000 digital assets and extensive feature set, including spot, futures, margin trading, and automated bots, alleging it failed to register as a broker-dealer and, in a landmark claim, that ETH is a security under the Martin Act (New York’s anti-fraud law).

SEC vs. Lido/Rocket Pool (2024) Developers: In 2024, the SEC took significant legal action involving Lido and Rocket Pool by filing a lawsuit against their primary distribution partner,  While not targeting ETH itself, the SEC charged developers of liquid staking protocols (stETH/rETH) with selling unregistered securities, highlighting regulatory concern over staking services.

In February 2025, under new leadership, the SEC dropped its lawsuit.  On August 5, 2025, the SEC issued a staff statement clarifying that  liquid staking activities generally do not involve the offer and sale of securities. The SEC now views liquid staking providers as performing “administrative” or “ministerial” functions rather than “managerial” work, meaning they act merely as agents for the depositors.  While general staking is deemed ministerial, “staking receipt tokens” (liquid staking) are considered securities if the underlying asset is a security. The potential for a “staked-as-standard” approach could boost Ethereum’s utility, particularly if the Clarity Act leads to tighter regulations or caps on stablecoin yields.

Consensys vs. SEC (2024): Consensys sued the SEC, challenging its authority to investigate or regulate ETH, arguing that the SEC’s efforts to label it a security are a “regulatory overreach”. This was triggered by a Wells Notice regarding MetaMask. The SEC notified Consensys that it would close its investigation into Ethereum 2.0, deciding not to bring an enforcement action alleging that ETH is a security.

CFTC v. Ikkurty (2024) ETH, BTC, OHM and Klima were ruled to be commodities under the Commodity Exchange Act. This decision, part of a fraud case, provided significant legal precedent backing the CFTC’s authority over crypto spot markets, distinguishing it from security classification.

The SEC & CFTC Issued Clarity on Digital Asset Classification & Regulation

Eight years after I wrote my article concerning the classification of ETH for US law purposes, on March 17, 2026, the SEC and  CFTC finally issued a landmark joint interpretation providing the most comprehensive regulatory clarity for digital assets to date resolving the  uncertainty surrounding ETH [and other digital assets], with U.S. regulators formally classifying it as a commodity, overcoming the primary barrier to institutional adoption that existed in 2018.

The guidance marked a shift from “regulation by enforcement” to a principles-based framework, explicitly stating that most digital assets are not themselves securities.  This  provided regulatory clarity, placing these digital assets under the jurisdiction of the CFTC as opposed to the SEC, allowing them to be listed on designated contract markets for derivatives trading.

The CFTC has indicated a willingness to treat tokens as commodities if they are truly decentralized and not managed by a central party. The agencies define a decentralized system as one that “functions and operates autonomously with no person, entity, or group of persons or entities having operational, economic, or voting control”.  The framework acknowledges that tokens initially sold as part of an investment contract (security) can transition into a digital commodity once the network becomes sufficiently decentralized or functional.

Digital Commodities: Digital assets intrinsically linked to a functional system are commodities with 16 digital assets classified as commodities that represent a significant shift from previous stances that often treated many of these digital assets as securities.

As of late March 2026, these 16 tokens collectively represent approximately 78% to 80% of the total cryptocurrency market capitalization.  As of early 2026, there are over 37 million unique cryptocurrencies and digital tokens created, according to The Motley Fool. However, only about 10,000 to 17,000 are considered active or actively tracked on major platforms like CoinGecko, with a high percentage of the total being inactive, scams, or “dead coins”.  The vast majority of this share is held by BTC and ETH, which together account for nearly 70% of the entire market. The remaining 14 tokens contribute a combined share of roughly 8% to 10%.

1. Bitcoin (BTC)
2. Ethereum (ETH)
3. Solana (SOL)
4. XRP (XRP)
5. Cardano (ADA)
6. Chainlink (LINK)
7. Avalanche (AVAX)
8. Polkadot (DOT)
9. Hedera (HBAR)
10. Litecoin (LTC)
11. Dogecoin (DOGE)
12. Shiba Inu (SHIB)
13. Tezos (XTZ)
14. Bitcoin Cash (BCH)
15. Aptos (APT)
16. Stellar (XLM)

Based on the landmark interpretative guidance issued by the SEC and CFTC on March 17, 2026, native tokens that are intrinsically linked to a functional, decentralized crypto system—such as those used for “gas” (transaction fees) or governance—generally do not meet the definition of an investment contract under the Howey test and are not securities.

Xin Yan, Co-Founder and CEO of Sign, said “The global impact of SEC and CFTC instituting a landmark joint regulatory framework is a positive one. It gives a green light to trillions of institutional capital that’s been sitting on the sidelines. I can see a lot of projects moving past the “Wild West” phase.”

Digital Collectibles: The U.S. SEC under Chairman Paul Atkins has clarified that most NFTs and digital collectibles are not considered securities, treating them instead as digital goods purchased for consumption or collection, similar to physical baseball cards. These assets, including digital art and meme coins, derive value from their own utility or demand rather than the managerial efforts of others, moving away from previous “regulation through enforcement” policies.

SEC Chair Paul Atkins stated that, unlike financial securities, these digital items are not typically investment contracts, emphasizing that their value is often driven by subjective cultural or artistic interest.  Buying an NFT is similar to buying a limited-edition print; you own the token (provenance), not the rights to the underlying artwork with the artist retaining the rights to create derivative works.  Many NFTs are created without the original artist’s permission, which constitutes copyright infringement.

The SEC’s 2026 interpretation clarifies that standard creator royalties do not, by themselves, transform a digital collectible into a security.

While most NFTs are not securities, digital collectibles that are fractionalized (providing fractional ownership in one asset) or structured with an expectation of profit from others’ managerial efforts may still be deemed securities.

Digital Tools: Assets with functional utility, such as membership tokens or digital credentials; these are not securities.

Stablecoins: Payment stablecoins issued under the GENIUS Act are excluded from the definition of a security.

The Stablecoin market capitalization hit a record $320 billion in March, with FATF’s report  quoting Chainalysis flagging that stablecoins accounted for 84% of illicit virtual asset transaction volume in 2025, often involving unhosted wallets and complex laundering techniques designed to obscure fund origins.

Xin Yan, Co-Founder and CEO of Sign—a Singapore-based firm building sovereign digital currency infrastructure—suggests that the Federal Reserve’s hesitation to issue a Central Bank Digital Currency (CBDC) before 2031, despite 49+ CBDC global pilot projects, creates a scenario where “the Fed is not directly competing with private stablecoins, while the slow U.S. CBDC adoption means U.S. commercial banks maintain control of the financial system rather than being disintermediated by a retail CBDC and continue to dominate the domestic financial market.” Yan argues that “the world is dividing into different camps.” The CBDC vs. Stablecoin with China pushing its e-CNY (a CBDC) to enhance state control, while the U.S. leans towards pushing stablecoins to maintain dollar dominance”, a move seen as a defense against China’s potential challenge to the US-dominated payment system.

Digital Securities: Tokenized traditional financial instruments; these remain securities regardless of their on-chain format.

Safe Harbors for Blockchain Activities

The joint interpretation confirms that several foundational activities generally do not involve securities transactions:

Protocol Mining: Proof-of-work validation and mining pool participation.

Protocol Staking: Proof-of-stake validation, including custodial and liquid staking, provided service providers act in an administrative capacity.

Wrapping: Depositing assets for one-to-one redeemable tokens across chains.

Airdrops: Distributions where recipients provide no consideration (money or services) in exchange.

Coordination of Digital Asset Legislation and its impact on Tokenization

The regulatory landscape for digital assets in the United States has undergone a historic transformation, characterized by the enactment of the GENIUS Act (July 18, 2025) and a landmark joint interpretation and memorandum of understanding (MOU) between the SEC and CFTC. This shift, supported by the pending CLARITY Act, marks a definitive end to a decade of “turf wars” over digital asset jurisdiction, aims to stabilize markets, and has initiated a “re-onshoring” of crypto activity to the United States which represents the world’s largest cryptocurrency market, commanding roughly 23.6% of global crypto revenue in 2025 and will accelerate tokenization of financial markets.

Wojciech Kaszycki, CSO of BTCS SA —  (formerly Vakomtek S.A.) is a Polish technology company headquartered in Warsaw recognized as Europe’s first dedicated Digital Asset Treasury Company (DATCO) — believes “The regulatory clarity provided by the SEC and CFTC is a step in the right direction.   It  will speed up tokenization of the global financial markets  to  allow for fractional ownership of expensive, traditionally restricted world assets like private credit, real estate, and infrastructure to bring liquidity, pricing to illiquid assets. Tokenization will make investing easier, thereby helping more people build long-term financial security and share in economic growth.”

While the financial markets are navigating a period of significant volatility driven by geopolitical tensions in the Middle East  with a broader crypto market downturn during 2026, projects tied to AI and RWA tokenization has shown resilience, frequently outperforming other sectors, mirroring BlackRock CEO Larry Fink’s sentiment.

BlackRock, Inc. is the world’s largest asset manager, overseeing a record $14 trillion in assets under management (AUM) as of early 2026 that has made a significant strategic commitment to tokenized funds as of March 2026, positioning the technology as the “next generation for markets”.  In his 2026 Chairman’s Letter to Investors, CEO Larry Fink compared the current state of tokenization to the internet in 1996, arguing that it will fundamentally “update the plumbing” of the global financial system.  Fink argued that tokenization will fundamentally transform TradFi by making investing faster, cheaper, and more accessible, directly impacting how ownership is recorded and traded.

Selva Ozelli Esq, CPA is an international digital asset legal  expert  and author of Sustainably Investing in Digital Assets Globally.  Her  writings are translated into 45 languages and republished in over 200 global publications.  She is recognized as an expert media/TV commentator on global digital asset regulation. tax and technology matters.

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