On Tuesday, March 19, the SEC issued joint guidance with the CFTC to “finally” provide clarity about how the securities laws apply to digital assets. On many issues, including staking and meme coins, the SEC’s new guidance is a welcome development and a marked improvement from the Gensler days. It also rightly acknowledges that the agency’s “regulation by enforcement” campaign under Chair Gensler had muddied compliance obligations and stifled the industry. But in important ways, the guidance stops short of the full course correction the crypto industry needs.

The biggest shortcoming is the SEC’s articulation of the Howey test for “investment contract” securities. All agree that most digital assets are not, on their own,…