A court is sending the "is crypto yield a security?" question up on appeal

A Procedural Step With Major Stakes

A Connecticut federal judge has cleared the way for the Second Circuit Court of Appeals to weigh in on one of the most consequential unresolved questions in crypto law: do interest-bearing crypto yield products qualify as securities?

Judge Stefan Underhill certified an interlocutory appeal, enabling Digital Currency Group (DCG), along with founder Barry Silbert and DCG President Mark Murphy, to ask the Second Circuit whether Genesis Yield is classified as a security. The move follows Underhill's February ruling, which found that Genesis Yield is indeed a security, relying on two landmark Supreme Court standards: the Howey test, which determines whether an investment contract exists, and the Reves test, which decides whether notes and lending instruments constitute a security.

To be clear, this is a procedural development, not a verdict. The judge certified the question for immediate appellate review precisely because the legal terrain is unsettled. DCG's argument was deemed to deserve attention from the Second Circuit because there is a difference of opinions on how older securities-law precedent applies to crypto.

Why the 2nd Circuit's Answer Matters

Crypto yield products have created a blurred line between loans and investments, and courts have reached conflicting conclusions when applying decades-old frameworks to them. For an industry still processing the fallout from the lending boom of 2021 and the collapses that followed in 2022, a definitive ruling on how the Howey and Reves tests apply to yield products would bring much-needed clarity for lenders, exchanges, investors, and regulators.

The case itself carries significant backstory. Genesis froze withdrawals in November 2022 and filed for bankruptcy in January 2023 after a roughly $1.1 billion loss tied to Three Arrows Capital, and DCG later paid the SEC $38.5 million in January 2025 and settled with the New York Attorney General for $2 billion.

In parallel, Judge Underhill revived a New York common law fraud claim against Barry Silbert, DCG, and other defendants over the Genesis Yield program, while dismissing state consumer protection claims in several states and staying others.

If the Second Circuit accepts the appeal and rules on the merits, the decision will carry weight far beyond this single case. The Second Circuit is a highly influential appellate court on matters of commerce and securities law, and a definitive ruling could establish clear guidelines on the classification of digital assets, influencing how they are regulated and traded. The industry has spent years avoiding a direct answer on crypto yield and securities status. That answer may now be coming.

Sources
Cryptopolitan: Crypto yield faces a securities test as court revives DCG fraud claim
Bloomberg Law: Silbert, DCG Get to Appeal Ruling on What Makes a Security
Law360: DCG Can Send Crypto Securities Question To 2nd Circ.