---
type: claim
domain: internet-finance
description: "The SEC now formally recognizes two termination pathways (fulfillment and failure/abandonment) plus a Transition Point mechanism for tokens to move from SEC to CFTC jurisdiction — creating a defined regulatory lifecycle for crypto assets rather than permanent securities classification"
confidence: proven
source: "SEC Interpretive Release S7-2026-09 (March 17, 2026); Director Moloney 'The Last Chapter in the Book of Howey'"
created: 2026-03-18
---

# The SEC's investment contract termination doctrine creates a formal regulatory off-ramp where crypto assets can transition from securities to commodities by demonstrating fulfilled promises or sufficient decentralization

The SEC's March 2026 interpretation establishes that investment contract status is not permanent. Two distinct termination pathways exist:

1. **Fulfillment:** The issuer completed or fulfilled its representations regarding essential managerial efforts. Purchasers can no longer reasonably expect profits from efforts that have been delivered.

2. **Failure/Abandonment:** The issuer failed to satisfy, abandoned, or permanently ceased its representations. Purchasers can no longer reasonably expect profits from efforts that are not happening.

In both cases, the Howey "expectation of profits derived from the efforts of others" prong is no longer satisfied, and the investment contract terminates.

The SEC-CFTC MOU adds a **Transition Point mechanism** — a formal process allowing a token to start as a security during development and transition to commodity status once it achieves sufficient decentralization AND the token's value is no longer tied to a central team's efforts. This creates a defined regulatory lifecycle: security at launch → commodity at maturity.

This is the single most important structural change in US crypto regulation since the 2017 DAO Report. It transforms what was previously legal theory into regulatory guidance with formal pathways. For futarchy-governed entities, the fulfillment pathway is directly applicable: once a project's governance infrastructure is built and operational, the issuer's promised managerial efforts have been fulfilled, and the token can exit securities classification.

The distinction between fulfillment and structural replacement matters. The SEC's model assumes managerial efforts exist and then end. Futarchy's model argues the structure prevents concentrated efforts from existing in the first place. These are compatible but not identical — and the fulfillment pathway may be the more pragmatic route for futarchy projects seeking regulatory clarity.

---

Relevant Notes:
- [[futarchy-governed entities are structurally not securities because prediction market participation replaces the concentrated promoter effort that the Howey test requires]] — the termination doctrine provides a formal pathway supporting this claim's core logic
- [[the DAO Reports rejection of voting as active management is the central legal hurdle for futarchy because prediction market trading must prove fundamentally more meaningful than token voting]] — partially obsoleted by the new framework
- [[Living Capital vehicles likely fail the Howey test for securities classification because the structural separation of capital raise from investment decision eliminates the efforts of others prong]] — new termination/safe harbor pathways complement this claim

Topics:
- [[internet finance and decision markets]]
- [[living capital]]
