Beyond “Security or Commodity”: Different Types of Digital Assets | Moore & Van Allen PLLC

In a prior post, we discussed the recent proposed rules from the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) regarding certain non-public information reported to the SEC and the CFTC in the Form PF. Most of the rule is discussing information and requirements that are not related to or focused on digital assets. However, in one part, there is a proposal to request information from private funds about their “digital assets”.

The definition from the SEC and CFTC for “digital assets” is broad and all encompassing. As a result, the regulators have asked for comments on “Should we require more specific disclosure of what each digital asset represents?”

We only raise this point here to give pause. Often, discussions about the classification of a digital asset only focuses on regulatory implications of “Is it a security? Is it a commodity? Is it both?” Overlooked, could be the fact that the types and uses of digital assets is continuing to grow and appears to only be limited by the creativity and ingenuity of developers as more and more uses are realized by developers and entrepreneurs. A digital asset could be a currency itself on a particular network/distributed ledger (e.g., ETH), a more general store of value or way to exchange value (e.g., BTC), but more broadly a digital asset can represent anything from an asset (e.g., wrapped tokens), to an access right, right to a board ape picture or fraction of a piece of artwork, or an entry ticket to a concert.

Furthermore, there are several different properties that can be used to classify different token use cases (e.g., protocol tokens vs application tokens, fungibility, transferability, supply, token flow, stability, etc.). 

Appreciating all of this is also important to understanding not only where we are today, but where things could go, and then using this information to drive strategies, analysis and guidance.

To help provide readers some sense of the potential scope for “digital assets”, the chart below provides some use cases that are relevant to the DeFi/financial services space and are already operational or in stages of development. However, since there is no generally-accepted terminology that is widely used across the discipline regarding types of digital assets, our summary is just one way to view this world.

The types of digital assets are grouped together based on key characteristics. However, the different typologies described below are not mutually exclusive and some use cases may fit in several categories.

*for a more complete list, see