On November 3, 2026, the staff (the “Staff”) of the Division of Corporation Finance (the “Division”) of the Securities and Exchange Commission (the “SEC”) issued a no-action letter (the “No-Action Letter”) regarding Canton Coin.  Digital Asset Holdings, LLC (“DA”) created the Canton blockchain protocol and developed the technology for Canton Coin, the native digital asset of the Canton Network.  In the No-Action Letter, the Staff determined that Canton Coin is a “digital commodity,” as described in the SEC’s March 2026 interpretive release (the “Interpretation”), and, therefore, is not a “security” under Section 2(a)(1) of the Securities Act of 1933, as amended (the “Securities Act”), or Section 3(a)(10) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  For these purposes, a “digital commodity” is “a crypto asset that is intrinsically linked to and derives its value from the programmatic operation of a crypto system that is functional, as well as supply and demand dynamics, rather than from the expectation of profits from the essential managerial efforts of others […] that does not have intrinsic economic properties or rights.”

In reaching this determination, the Staff highlighted (i) the absence of a “central party,” a concept addressed in its recent frequently asked questions (the “FAQs”) (discussed here and here), and (ii) the fact that Canton Coin is intrinsically linked to, and derives its value from, the programmatic operation of the Canton Network, as well as supply and demand dynamics, rather than from the expectation of profits from the essential managerial efforts of others.  The Staff also stated that it will not recommend enforcement action if Canton Coin is minted programmatically by Super Validators, Validators, and application providers, in the manner and under the circumstances described in the incoming letter, without registration under Section 5 of the Securities Act or Section 12(g) of the Exchange Act.

Key Facts in the Incoming Letter

The incoming letter walks through each element of the digital commodity description in the Interpretation and offers a useful roadmap of the “investment contract” analysis under the Howey test.  Specifically, “Canton Coin is intrinsically linked to and derives its value from the programmatic operation of a crypto system, the Canton Network, which is functional and was functional upon launch.”

Canton Coin is a “Digital Commodity”

  • Functionality at launch.  Canton Coin was launched only after the Canton Network was functional. There was no initial coin offering, pre-mine, or other pre-launch sale or allocation.  Since the network launched in June 2024, all Canton Coin has been minted programmatically by network participants based on network activity.
  • The value derives from the programmatic operation of the Canton Network and from supply and demand dynamics.  New Canton Coin enters circulation only through protocol-defined minting, while all Canton Coin used to pay network fees is burned.  Demand comes mainly from participants that need Canton Coin to pay those fees.  As a result, Canton Coin’s price is expected to align with the network’s utility over the long run.
  • No central party.  Any change to the protocol, including minting parameters and the admission of new Super Validators, requires the approval of at least two-thirds of the Super Validator Node Operators. As of September 30, 2026, there were 13 Super Validator Node Operators and approximately 60 Super Validators.  Each Super Validator Node Operator has one vote, regardless of how many Super Validators it hosts or how much Canton Coin it holds. DA operates two of the 13 Super Validator Nodes, but represented that it cannot unilaterally dictate consensus outcomes. The Canton Foundation, a non-profit entity, facilitates governance and hosts committees, including a tokenomics committee that determines the economic parameters for Canton Coin. No “central party” exists with respect to the Canton Network because no person, including the Canton Foundation and DA, has operational, economic, or voting control of the Canton Network.
  • No intrinsic economic characteristics of a security.  Canton Coin conveys no right to future income, profits, or assets of DA, the Canton Foundation, any Super Validator, any application provider, or any other enterprise, promisor, or obligor, nor does holding Canton Coin passively accrue yield.

Programmatic Minting of Canton Coin by Super Validators, Validators and Application Providers Are Not Transactions Involving “Investment Contracts” Under Howey

The incoming letter focuses on the third prong of Howey, whether there is a reasonable expectation of profits derived from the entrepreneurial or managerial efforts of others, and notes that the failure of any one element defeats the existence of an investment contract.

  • Rewards reflect participants’ own efforts.  Any profit expectation of Super Validators, Validators, and application providers is based on their own efforts, because rewards are tied to each participant’s own measured activity.  An application that drives no activity earns nothing.  The incoming letter also characterizes the services of Super Validators and Validators as administrative or ministerial, consistent with the Interpretation’s treatment of protocol mining, and notes that no sponsor or promoter calculates, pays, or plays a necessary role in disbursing rewards.
  • No essential managerial efforts after functionality.  The incoming letter relies on Question 2.3 of the FAQs, in which the Division stated that, once a crypto system is functional, services to secure, maintain, improve, or enhance the system, or to facilitate network effects, would not involve essential managerial efforts.  Because the Canton Network was functional at launch and there was no pre-launch sale, the incoming letter concludes that there was no pre-functional period in which purchasers could have formed profit expectations tied to promised managerial efforts, and that the ongoing support from DA, the Canton Foundation, and others does not constitute essential managerial efforts.

Takeaways

While the No-Action Letter is one example of how the Staff may apply the digital commodity framework in the Interpretation to a specific token, it remains to be seen whether the Staff will provide similar analysis with regard to other tokens.  What is clear, however, is that the Staff is interested in providing guidance and clarity to those in the crypto space, and that this area remains one to watch.

Access the No-Action Letter: Canton Coin No-Action Letter.

Access the Incoming Letter: Canton Coin Incoming Letter.