How Do Regulators Determine If a Token Is a "Security" or a "Utility"? ⎊ Path

How Do Regulators Determine If a Token Is a “Security” or a “Utility”?

In the U.S. regulators like the SEC often use the Howey Test to determine if a token is a security. This test has four prongs: an investment of money, in a common enterprise, with an expectation of profit, to be derived from the efforts of others.

If a token meets these criteria, it is likely a security. A true utility token, in contrast, is purchased for its consumptive use on a platform or network, similar to a software license or an arcade token, rather than as a passive investment.

The distinction often comes down to the primary motivation of the purchaser.

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