California's Corporate Securities Law of 1968 defines "security" by providing a long list of financial instruments. Cal. Corp. Code Section 25107. Not included on the list are so-called digital assets. In modern parlance, a digital asset is an asset that is issued and transferred using distributed ledger or blockchain technology, including, but not limited to, so-called "virtual currencies," "coins," and "tokens." Strategic Hub for Innovation and Financial Technology of the Securities and Exchange Commission, Framework for “Investment Contract” Analysis of Digital Assets, n. 2.
Although omitted from the list, a digital asset may nevertheless be a security if it meets the definition of an "investment contract", a term that is on the list. Recently, however, California Assembly Member Ian Calderon has proposed to amend Section 25017 to create a rebuttable presumption that a digital asset is not an investment contract if it meets any one of the following three criteria:
- The asset is not acquired by the holder in exchange for the payment of fiat currency or another digital asset.
- The asset is used on a fully operational network and the purpose of the asset is for a consumptive purpose, such as the access or consumption of goods, services, data, or the performance of useful functions other than as a medium of exchange or store of value.
- The asset does not rely on the managerial efforts of others for its success, with the lack of managerial efforts of others evidenced by the absence of any identifiable person, project team, or management entity that is responsible for the development, improvement, oversight, or promotion of the asset or the related network, and either:
- Any changes to the software code underlying that asset may be made by network participants.
- Voting rights over the functioning of the network are conferred to each holder of the asset.
The Commissioner of Business Oversight could rebut the presumption "upon good cause shown by clear and convincing evidence. It is unclear whether the presumption may be rebutted in a private action.