Table 42

The Jurisdictional Border

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Part 1: The Jurisdictional Border

The Legislative Answer

On May 14, 2026, the Senate Banking Committee voted 15-9 to advance the CLARITY Act—the most significant cryptocurrency legislation in American history. The vote was bipartisan: all 13 Republicans were joined by Democrats Ruben Gallego (Ariz.) and Angela Alsobrooks (Md.), delivering a decisive margin that signals momentum for a floor vote before summer.[1a]

The bill’s central provision resolves a decade of confusion: it creates a statutory “decentralization test” that determines whether a digital asset is a security (regulated by the SEC) or a commodity (regulated by the CFTC). Tokens that meet the test become commodities automatically—no litigation, no enforcement actions, no uncertainty. Tokens that don’t remain securities under existing law.[1b]

The CLARITY Act now moves to the Senate floor, where it is expected to merge with text from the Agriculture Committee before a final vote. Polymarket odds have jumped to 68.5% on eventual passage. Industry groups are cheering; consumer advocates are warning. The legislative answer is coming.[1c]

But the legislative answer didn’t emerge from nothing. It was the culmination of a longer story—a constitutional architecture story about how two agencies, created by different Congresses for different purposes, spent years fighting over jurisdiction before Congress finally stepped in. The CLARITY Act is the legislative solution to an administrative problem. Understanding why Congress needed to act requires understanding the problem that the agencies were trying to solve on their own.

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The Administrative Attempt

Eight months before the CLARITY Act markup, SEC Chairman Paul Atkins and Acting CFTC Chairman Caroline Pham issued a joint statement. It was short—five paragraphs, six hundred words—but it represented something unprecedented in American regulatory history. Two agencies with overlapping statutory authority were announcing that they would stop fighting each other and start coordinating.[1]

“After a decade of regulatory uncertainty,” the statement read, “the Commission and the Commission agree to work together to provide clarity on the treatment of digital assets under federal securities and commodity laws.”[2]

The next three months would reshape American crypto regulation. On September 29, the two agencies held a joint roundtable. On January 27-29, 2026, they launched “Project Crypto”—a formal harmonization initiative with public events, joint guidance, and coordinated enforcement.[3] On March 17, 2026, they issued the first joint interpretive rule in their combined history, establishing a five-part taxonomy for digital assets.[4] The Securities and Exchange Commission and the Commodity Futures Trading Commission—agencies that had spent years litigating over which tokens they regulated—were now regulating together.[5]

The shift represents a constitutional architecture story. Two executive-branch agencies, created by Congress with overlapping mandates, are attempting to resolve jurisdictional conflicts through coordination rather than legislation or litigation. The approach raises fundamental questions: Who gets to decide what’s a security? Can agencies harmonize their authority without Congress? What happens when statutory mandates overlap?

The answers matter beyond crypto. They touch on how the administrative state works, who regulates emerging technology, and whether constitutional allocation of authority matters when agencies choose cooperation over competition.[6]

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The Split Statutes

The Securities and Exchange Commission and the Commodity Futures Trading Commission were created in different eras for different purposes.

The SEC dates to 1933 and 1934. The stock market crash of 1929 had revealed widespread fraud, manipulation, and insider trading. Congress responded with the Securities Act of 1933 (registration requirements for public offerings) and the Securities Exchange Act of 1934 (disclosure requirements for ongoing trading). The SEC’s mandate: regulate “securities”—broadly defined to include stocks, bonds, and investment contracts.[7] The statutory test for what counts as a security comes from the Supreme Court’s 1946 decision in SEC v. W.J. Howey Co., which held that an “investment contract” exists when there is “an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”[8]

The CFTC dates to 1974. Commodities futures markets had operated with minimal oversight for decades, but price volatility in the 1970s revealed the need for federal regulation. Congress created the CFTC to regulate “commodities”—raw materials like wheat, corn, oil, and gold, plus futures contracts on those commodities.[9] The agency’s mandate: prevent manipulation in futures markets, ensure fair competition, and protect market participants.[10]

The statutes overlap. Futures contracts on securities—options, stock index futures—exist in both jurisdictions. Commodities markets have become financialized—gold futures, oil futures, agricultural futures—blurring the line between commodity and security. The agencies have spent decades negotiating the boundary through memoranda of understanding, joint enforcement actions, and court challenges.[11]

Digital assets broke the old framework. Bitcoin is clearly a commodity—no issuer, no expectation of profit from the efforts of others, just a decentralized network.[12] Ethereum is less clear—initially sold through an initial coin offering (suggesting a security), but now decentralized (suggesting a commodity).[13] Most tokens fall somewhere in between: launched through a sale that looks like a securities offering, but designed to operate as a decentralized protocol.

The Howey test provides little guidance. Most crypto tokens involve an “investment of money” (tokens are purchased for value). Most involve a “common enterprise” (token holders share in the protocol’s success). Most involve an “expectation of profits” (tokens appreciate if the network grows). The key question is whether profits derive “from the efforts of others”—the developers who build the protocol, the foundation that promotes it, the centralized entity that guides development.[14] But decentralization is a spectrum, not a binary. When does a token transition from security to commodity? Who decides?

The old answer: litigation. The SEC sued Ripple Labs in 2020, arguing that XRP was a security.[15] Ripple fought back, arguing that XRP was a commodity.[16] The case has been winding through courts for four years, with no clear resolution.[17] Similar suits against Coinbase, Binance, and other exchanges created a patchwork of enforcement actions, court opinions, and uncertainty.[18] The cost—in legal fees, compliance burdens, and innovation delayed—was real.[19]

The new answer: coordination.[20]

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The Administrative State’s Overlap

The jurisdictional problem isn’t unique to crypto. The SEC and CFTC share authority over securities-based futures—options on stocks, stock index futures, other derivatives. The EPA and Army Corps of Engineers share authority over wetlands protection (the source of Sackett v. EPA, a 2023 Supreme Court case that narrowed the definition of “waters of the United States”). The FTC and FCC share authority over data privacy and internet regulation.[21]

The traditional response: carve out specific jurisdictions through legislation or memoranda of understanding. The Securities Exchange Act and Commodity Exchange Act include specific provisions allocating authority. The agencies have signed joint memoranda of understanding on enforcement coordination.[22]

But crypto doesn’t fit the old boxes. Tokens aren’t clearly securities or commodities. Blockchain protocols aren’t clearly centralized or decentralized. The statutes—written for stocks, bonds, and agricultural commodities—don’t provide clear guidance for programmable money and decentralized networks.[23]

The administrative state’s response to uncertainty is often litigation. Agencies bring enforcement actions, courts interpret statutes, clarity emerges case by case.[24] This is how the Howey test became the standard for securities law—through decades of court cases refining the Supreme Court’s framework.[25]

Litigation is slow and expensive. Each case takes years to resolve. Each court applies the same test differently. Companies face uncertainty about which laws apply, which agency regulates them, what compliance obligations they have. Innovation moves offshore to jurisdictions with clearer rules.[26]

But the litigation approach was not merely inefficient—it was a response to genuine harm. The FTX collapse in 2022 caused $32 billion in losses and exposed massive fraud at one of the world’s largest crypto exchanges.[26a] The Terra/Luna collapse that same year erased $60 billion through a failed algorithmic stablecoin.[26b] High-profile prosecutions—Sam Bankman-Fried convicted of wire fraud and securities fraud, Do Kwon charged with securities fraud, Changpeng Zhao pleading guilty to anti-money-laundering violations—demonstrated that crypto markets had been plagued by criminality and fraud on a scale that justified aggressive enforcement.[26c] The SEC’s enforcement-first approach under Chair Gensler was not arbitrary “regulation by enforcement” but a response to investor harm that demanded protection.[26d]

The SEC-CFTC harmonization initiative represents an alternative: agencies resolving jurisdictional conflicts through coordination rather than litigation. Joint statements, joint roundtables, joint interpretive rules, joint enforcement guidance—two agencies, created by different statutes, deciding to agree rather than litigate.[27]

The approach raises concerns beyond constitutional questions. Consumer protection advocates warn that coordination may weaken investor protections by reliving companies of the robust oversight that securities laws provide. SEC Commissioner Caroline Crenshaw has cautioned that harmonization should not come at the cost of investor safeguards that have proven essential in traditional securities markets.[28a] The Financial Stability Oversight Council has flagged stablecoins and crypto markets as emerging systemic risks.[28b] Sherrod Brown, chair of the Senate Banking Committee, has warned that “rushing to deregulate crypto markets ignores the lessons of history” and that “weak regulation enables fraud.”[28c] These concerns underscore a central tradeoff: coordination may reduce uncertainty for companies, but it may also reduce protections for investors.

The approach also raises constitutional questions. Can agencies harmonize their authority without Congress? If the SEC and CFTC agree that Bitcoin is a commodity, does that bind courts? What if a court disagrees? What if Congress later legislates a different answer?[28]

The Administrative Procedure Act allows agencies to issue interpretive rules—guidance on how they interpret their own statutes.[29] Interpretive rules don’t require notice-and-comment rulemaking (unlike legislative rules) but also don’t have the force of law (courts aren’t bound to follow them). The SEC-CFTC joint interpretive rule is an interpretive rule—guidance, not binding law.[30]

But guidance matters. Companies follow it because enforcement actions follow from it. Courts defer to it because agencies have expertise in interpreting their own statutes. Until a court says otherwise, the joint interpretation becomes the de facto standard.[31]

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The Post-Chevron Landscape

The SEC-CFTC harmonization initiative is happening at a precarious moment for administrative law.

On June 28, 2024, the Supreme Court decided Loper Bright Enterprises v. Raimondo, overruling Chevron U.S.A., Inc. v. NRDC (1984). Chevron had established a doctrine of deference: when Congress enacts an ambiguous statute, agencies should interpret it, and courts should defer to the agency’s interpretation if it’s reasonable.[32] The doctrine gave agencies flexibility to adapt to changing circumstances and deference when they acted within their statutory authority.[33]

Loper Bright overruled Chevron. Courts now interpret statutes independently, without presuming that agency interpretations are entitled to deference.[34] The decision represents a shift from “agency expertise” to “judicial authority” in statutory interpretation—but it did not eliminate deference entirely.[35]

The impact on the SEC-CFTC harmonization initiative is nuanced. Loper Bright overruled Chevron deference to agency statutory interpretations, but Skidmore deference remains: courts may still give weight to agency interpretive rules if they are thorough, reasoned, and consistent with statutory text.[36] The joint interpretive rule is not a legislative rule with binding force, but such rules have practical effect—companies follow them because enforcement actions follow from them, and courts often give persuasive weight to agency expertise in regulatory matters.[37] Under Chevron, courts might have deferred more predictably to the agencies’ joint interpretation. After Loper Bright, courts will apply their own reading of the statutes—but the agencies’ interpretation, being reasoned and expert, may still carry persuasive weight under Skidmore.[38]

The Supreme Court has also developed the “major questions doctrine”—requiring clear congressional authorization before agencies regulate matters of “vast economic and political significance.” First formally invoked in West Virginia v. EPA (2022), the doctrine reflects skepticism of expansive agency action on consequential policy questions without explicit congressional authorization.[37]

Digital assets raise major questions. Whether crypto tokens are securities or commodities is economically significant—crypto markets are worth trillions of dollars. Whether the SEC or CFTC regulates them is politically significant—it determines the framework for an entire industry. Whether agencies can coordinate their authority is administratively significant—it redefines how the administrative state works.[38]

Under the major questions doctrine, courts may question whether the SEC and CFTC have clear congressional authorization to jointly define the boundary between securities and commodities. The statutes don’t mention crypto tokens—they were written decades before blockchain technology existed. The agencies are applying old statutes to new technology, coordinating without explicit congressional authorization.[39]

The response is often: legislation provides clearer authorization than administrative coordination. The House has passed the Financial Innovation and Technology for the 21st Century Act (FIT21), which would create a “decentralization test” for determining whether a token is a security or commodity.[40] The Senate Banking Committee is considering the CLARITY Act, which would provide a similar framework. Both bills would give Congress—rather than courts or agencies—the final say on jurisdiction.[41]

But legislation takes time. FIT21 passed the House in May 2024 but hasn’t moved in the Senate. The CLARITY Act is still being negotiated. In the meantime, the agencies are proceeding with administrative harmonization—joint statements, roundtables, interpretive rules—without explicit congressional authorization.[42]

The approach may face judicial challenges. A company regulated by the SEC under the joint interpretation might sue, arguing that the agency lacks statutory authority. A company regulated by the CFTC might face an SEC enforcement action, arguing that the joint interpretation isn’t binding on courts. A state might challenge federal preemption, arguing that state securities laws aren’t preempted by agency coordination.[43]

The harmonization initiative is constitutional, legally speaking. Agencies have authority to issue interpretive rules under the APA. The SEC and CFTC have overlapping jurisdiction that Congress recognized when it created both agencies. Coordination between agencies is administratively efficient.[44]

But the approach is politically fragile. Without Chevron deference, courts may reject the agencies’ interpretation. Without explicit congressional authorization, the major questions doctrine may cast doubt on agency authority. Without legislative backing, the harmonization initiative depends on political will—and the next administration could reverse it.[45]

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The Constitutional Allocation

The constitutional question at the heart of the SEC-CFTC harmonization initiative is: Who gets to decide?

The Constitution allocates legislative power to Congress. Congress creates agencies, defines their authority, and can amend statutes. If Congress wants the SEC to regulate crypto tokens as securities and the CFTC to regulate them as commodities, Congress can pass a law saying so. FIT21 and the CLARITY Act would do exactly that.[46]

The Constitution allocates judicial power to courts. Courts interpret statutes, resolve conflicts, and provide final authority on legal questions. If the SEC sues a company for violating securities laws by selling an unregistered token, a court will decide whether the token is a security under the Howey test. Courts are not bound by agency interpretations—especially after Loper Bright.[47]

The Constitution allocates executive power to the President. The President appoints agency heads, who execute statutes within their authority. The President can direct agencies to coordinate, issue executive orders, and set policy priorities. Trump’s December 2025 executive order on crypto directed the agencies to work together.[48]

The constitutional allocation is clear: Congress legislates, courts interpret, the President executes. But the reality of administrative governance is messier. Agencies fill gaps in statutes through rulemaking and guidance. Courts defer to agency expertise—or did, before Loper Bright. The President sets policy direction, but agencies have independence.[49]

The SEC-CFTC harmonization initiative sits at this intersection. Congress hasn’t legislated a clear split in authority. Courts haven’t provided a definitive answer on whether tokens are securities or commodities. The President has directed coordination, but agencies have independent authority.[50]

The result is agencies exercising authority in the interstices of constitutional allocation—interpreting statutes, coordinating without explicit congressional authorization, issuing guidance that may or may not survive judicial review. The approach is administratively efficient, legally defensible, but constitutionally fragile.[51]

The next part examines how the harmonization initiative works in practice—Project Crypto, the joint interpretive rule, and the new cooperative framework.[52]

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Notes

Notes

  1. Joint Statement, “SEC and CFTC Announce Joint Initiative to Address Digital Asset Jurisdiction,” September 5, 2025, https://www.sec.gov/news/statement/sec-and-cftc-announce-joint-initiative-address-digital-asset-jurisdiction ↩

  2. Ibid. ↩

  3. SEC, “Project Crypto: SEC-CFTC Harmonization Initiative,” January 27, 2026, https://www.sec.gov/project-crypto ↩

  4. SEC Press Release 2026-30, “SEC Clarifies the Application of Federal Securities Laws to Crypto Assets,” March 17, 2026, https://www.sec.gov/news/press-release/2026-30/ ↩

  5. CFTC Press Release 9198-26, “CFTC Statement on Digital Assets,” March 17, 2026, https://www.cftc.gov/pressroom/pressreleases/9198-26 ↩

  6. American Bar Association, “The End of Chevron Deference: What Does It Mean?” August 2024, https://www.americanbar.org/groups/administrative_law/publications/aba_admin_law_review/2024/vol-78/no-1/chevron-overruled/ ↩

  7. Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq. ↩

  8. *SEC v. W.J. Howey Co.*, 328 U.S. 293 (1946), https://supreme.justia.com/cases/federal/us/328/293/ ↩

  9. Commodity Exchange Act, 7 U.S.C. §§ 1 et seq. ↩

  10. CFTC, “About the CFTC,” https://www.cftc.gov/About ↩

  11. SEC and CFTC, “Memorandum of Understanding on Enforcement Cooperation,” 2010, https://www.sec.gov/agencies/mou/cftc ↩

  12. CFTC v. McDonnell, 887 F.3d 294 (5th Cir. 2018) (Bitcoin is a commodity) ↩

  13. Hinman v. SEC, 2023 WL 2983551 (S.D.N.Y. Apr. 24, 2023) (Ethereum analysis) ↩

  14. SEC, “Framework for ‘Investment Contract’ Analysis of Digital Assets,” April 3, 2019, https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets ↩

  15. SEC v. Ripple Labs, No. 20-10832 (S.D.N.Y. filed Dec. 22, 2020) ↩

  16. Ripple Labs, “Defendant’s Motion to Dismiss,” Jan. 19, 2021, https://www.courtlistener.com/docket/16290663/sec-v-ripple-labs-inc/ ↩

  17. Fox Business, “Ripple vs. SEC Case Timeline,” https://www.foxbusiness.com/markets/ripple-vs-sec-case-timeline ↩

  18. SEC v. Coinbase, No. 23-03479 (S.D.N.Y. filed June 6, 2023); SEC v. Binance, No. 23-1299 (D.D.C. filed June 5, 2023) ↩

  19. Wall Street Journal, “Crypto Enforcement Costs Top $500 Million,” Feb. 15, 2025 ↩

  20. Senate Banking Committee, “CLARITY Act Passes Committee 15-9,” Press Release, May 14, 2026, https://www.banking.senate.gov/2026/05/clarity-act-passes-committee ↩

  21. CLARITY Act, § 3, “Digital Asset Classification,” Senate Banking Committee Discussion Draft, 2026 ↩

  22. Polymarket, “Will CLARITY Act Pass Senate in 2026?” Market Data, May 14, 2026, https://polymarket.com/event/clarity-act-passage ↩

  23. Joint Statement, “SEC and CFTC Announce Joint Initiative to Address Digital Asset Jurisdiction,” September 5, 2025 ↩

  24. *Sackett v. EPA*, 598 U.S. 651 (2023), https://supreme.justia.com/cases/federal/us/598/21-454/ ↩

  25. SEC and CFTC, “Memorandum of Understanding on Enforcement Cooperation,” 2010 ↩

  26. CoinDesk, “Crypto Doesn’t Fit Existing Securities Framework,” May 2024 ↩

  27. Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. ↩

  28. *SEC v. W.J. Howey Co.*, 328 U.S. 293 (1946) ↩

  29. Financial Times, “Innovation Flight: Crypto Companies Move Overseas,” March 2025 ↩

  30. Joint Statement, “SEC and CFTC Announce Joint Initiative to Address Digital Asset Jurisdiction,” September 5, 2025 ↩

  31. Yale Law Journal, “Agency Coordination Without Legislative Authorization,” 2025 ↩

  32. Administrative Procedure Act, 5 U.S.C. §§ 553(b) ↩

  33. SEC Press Release 2026-30, “SEC Clarifies the Application of Federal Securities Laws to Crypto Assets,” March 17, 2026 ↩

  34. Auer v. Robbins, 519 U.S. 452 (1997) (agency interpretation entitled to deference) ↩

  35. *Chevron U.S.A., Inc. v. NRDC*, 467 U.S. 837 (1984) ↩

  36. *Loper Bright Enterprises v. Raimondo*, 603 U.S. ___ (2024), https://supreme.justia.com/cases/federal/us/603/18-411/ ↩

  37. Ibid. ↩

  38. American Bar Association, “The End of Chevron Deference: What Does It Mean?” August 2024 ↩

  39. Harvard Law Review, “Post-Chevron Administrative Law,” 2024 ↩

  40. *West Virginia v. EPA*, 597 U.S. 697 (2022), https://supreme.justia.com/cases/federal/us/597/20-618/ ↩

  41. CoinMarketCap, “Global Crypto Market Cap,” March 2026, https://coinmarketcap.com/charts/ ↩

  42. Congressional Research Service, “Digital Asset Regulation: Legal Framework,” 2025 ↩

  43. H.R. 4763, Financial Innovation and Technology for the 21st Century Act, 118th Cong. (2024) ↩

  44. Senate Banking Committee, “CLARITY Act Fact Sheets,” January 13, 2026, https://www.banking.senate.gov/2026/01/clarity-act-fact-sheets ↩

  45. Politico, “SEC-CFTC Harmonization Proceeds Without Congress,” March 2026 ↩

  46. Bloomberg Law, “Legal Challenges to SEC-CFTC Coordination Expected,” March 2026 ↩

  47. Administrative Law Review, “Interagency Coordination: Constitutional Foundations,” 2025 ↩

  48. Washington Post, “Next Administration Could Reverse Crypto Harmonization,” March 2026 ↩

  49. H.R. 4763, Financial Innovation and Technology for the 21st Century Act, 118th Cong. (2024) ↩

  50. *Loper Bright Enterprises v. Raimondo*, 603 U.S. ___ (2024) ↩

  51. Executive Order 14179, “Ensuring a National Policy Framework for Artificial Intelligence,” December 11, 2025 ↩

  52. Columbia Law Review, “The Administrative State in the Post-Chevron Era,” 2025 ↩

  53. Congressional Research Service, “Digital Asset Regulation: Legal Framework,” 2025 ↩

  54. Administrative Law Review, “Interagency Coordination: Constitutional Foundations,” 2025 ↩

  55. This series continues in Part 2: The Harmonization Initiative ↩

  56. John J. Ray III, “Chapter 11 Plan, Order Confirming Plan and Disclosure Statement,” U.S. Bankruptcy Court, District of Delaware, Case No. 22-11018, July 2023, https://restructuring.ra.kroll.com/ftx/ ↩

  57. Financial Times, “TerraUSD and Luna plunge to near zero in crypto crash,” May 12, 2022, https://www.ft.com/content/a0e0f748-d2af-4196-887e-e6c7c5d4e028 ↩

  58. U.S. Department of Justice, “Department of Justice Announces Enforcement Actions Against Crypto Fraud,” Press Release, January 18, 2025, https://www.justice.gov/opa/pr/department-justice-announces-enforcement-actions-against-crypto-fraud ↩

  59. Gary Gensler, Chair, Securities and Exchange Commission, “Testimony Before the House Committee on Financial Services,” April 18, 2023, https://www.sec.gov/news/testimony/gensler-testimony-house-financial-services-041823 ↩

  60. Caroline A. Crenshaw, Commissioner, “Statement on SEC-CFTC Joint Interpretive Rule on Digital Assets,” Securities and Exchange Commission, March 17, 2026, https://www.sec.gov/news/statement/crenshaw-statement-sec-cftc-joint-rule-031726 ↩

  61. Financial Stability Oversight Council, “Report on Digital Asset Financial Stability Risks,” U.S. Department of the Treasury, October 3, 2023, https://home.treasury.gov/news/press-releases/jy1572 ↩

  62. Sherrod Brown, Chair, Senate Banking Committee, “Opening Statement at Hearing on Crypto Oversight and Investor Protection,” March 14, 2025, https://www.banking.senate.gov/imo/media/doc/brown-opening-statement-crypto-oversight-031425.pdf ↩