Is Avalanche a Security?

Are we are finally applying securities law with enough precision to distinguish between capital formation and infrastructure?

Avalanche sits directly in the middle of that divide.

The SEC’s March 2026 interpretation, paired with the Ava Labs policy response led by General Counsel Lee Schneider, brings that tension into focus in a way that feels materially different from prior cycles.

Avalanche Forces the Right Question

Avalanche is a fun test case for a securities law nerd like me.

Its architecture, particularly its subnet model and validator-driven consensus, makes it difficult to reduce to a simple “issuer plus token” narrative. The token exists within a functioning system. Validators perform technical services. Value accrues from network usage, not from managerial promises in any conventional sense.

That framing aligns with a position I have taken repeatedly in my writing and advisory work: securities law is at its strongest when it targets capital raising and investor protection, not when it is stretched to cover operational infrastructure.

The SEC’s Shifting Interpretation

The most important development in the SEC’s 2026 interpretation is methodological.

The agency is moving toward a functional taxonomy. “Digital commodities” are described as assets whose value is tied to the programmatic operation of a network. That is a meaningful step. It signals that classification turns on what the system does, not just how it was initially distributed.

The interpretation also reinforces two points that have been inconsistently applied in enforcement:

• A crypto asset is not inherently a security

• The Howey analysis is transaction-specific and fact-driven

That second point matters more than most people appreciate. It narrows the analysis. It forces discipline. It limits the tendency to treat entire ecosystems as securities offerings based on early-stage conduct.

The SEC also draws a clearer boundary around protocol activity. Staking, mining, and certain network-level functions can fall outside the securities framework when they are administrative or ministerial. That is a recognition that not all economic activity within a blockchain system is investment activity.

Finally, the concept of “separation” introduces temporal nuance. Investment contracts can terminate. Assets can evolve. Networks can mature beyond their initial distribution phase.

These changes reflect a more coherent application of existing law.

Ava Labs Is Pushing Forward

Lee Schneider brings credibility that the market pays attention to. His background across major law firms, fintech leadership, and policy work gives weight to the positions Ava Labs is advancing.

Their framework is generally:

• Focus on the nature and function of the asset

• Keep infrastructure outside intermediary regulation

• Anchor regulation in real economic activity

This is consistent with positions I have advanced in prior articles on digital asset classification and broker-dealer boundaries. In particular, the concern around improperly pulling infrastructure participants into regulated intermediary status has been one of the most persistent risks in this space. It distorts incentives and misapplies statutory intent.

Where Ava Labs goes further is on liability.

The Liability Debate

Ava Labs’ position implicitly leans toward limiting liability in highly automated systems, potentially to a “bad faith” standard.

As systems become more automated, the traditional justifications for expansive liability weaken. Code executes. Validators perform defined functions. Discretion narrows.

But the current state of the market does not fully support that conclusion.

Automation is advancing, but human involvement still exists in some areas:

• Onboarding and access controls

• Edge-case decision-making

• Compliance and monitoring overlays

• Operational and servicing functions

Those touchpoints introduce judgment and that introduces responsibility.

A liability framework that assumes full automation risks overshooting the present reality. A more calibrated approach allows for the continued evolution of these systems without creating gaps in accountability where human discretion still plays a role.

This is consistent with a broader theme in my prior writing: regulatory frameworks should track how systems actually operate, not how we expect them to operate at scale in the future.

Where Avalanche Lands Under This Framework

Avalanche, as a network, fits nicely within the direction the SEC is moving - and is low risk in terms of securities labels.

Its functionality, validator structure, and economic design support classification as infrastructure. AVAX, in that context, aligns with the concept of a digital commodity when used within the network.

There’s still potential risk. Transactions involving AVAX can still raise securities issues depending on how they are structured and presented. Capital formation activity remains squarely within the SEC’s jurisdiction. That line is not going away.

What is changing is the scope of what falls outside that line, and the existence of predictable guardrails.

The Broader Implication

The SEC and sophisticated market participants are converging on a more precise framework.

That precision allows innovation to proceed without collapsing everything into a single regulatory category. It also preserves the core function of securities law, which is to regulate capital raising and protect investors in that context.

Avalanche is a clear example of why that distinction matters.

That’s all for now,

Braeden

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About the author

K. Braeden Anderson is a Partner at Gesmer Updegrove, where he leads the firm’s Securities Enforcement & Investigations practice, and chairs Mackrell International’s Blockchain & Digital Assets Group and Securities Enforcement & Investigations Group. He is a nationally recognized securities regulatory and enforcement attorney whose practice sits at the intersection of traditional financial regulation and emerging technology. He has been recognized in Best Lawyers: Ones to Watch® in America (2025) for Financial Services Regulation Law and Securities Regulation, and was named the #1 most-read fintech thought leader in the United States in Mondaq’s Spring 2025 Thought Leadership Awards.

Before joining Gesmer Updegrove, he previously served as Assistant General Counsel at Robinhood Markets, Inc. (NASDAQ: HOOD), advising on high-stakes regulatory and enforcement matters, and earlier practiced at Kirkland & Ellis LLP and Sidley Austin LLP in New York and Washington, D.C.

Braeden publishes a weekly newsletter reaching more than 20,000 legal and financial professionals, runs a YouTube channel with over 160,000 subscribers, and regularly produces written and multimedia thought leadership through his blog, Anderson Insights. His work focuses on enforcement trends, fintech regulation, and the evolving role of digital assets in capital markets.