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

**Published:** 2025-12-04
**Author:** Greeks.live
**Categories:** Path

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## 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.

- [How Does the “Howey Test” Determine If a Crypto Derivative Falls under SEC or CFTC Jurisdiction?](https://learn.greeks.live/path/how-does-the-howey-test-determine-if-a-crypto-derivative-falls-under-sec-or-cftc-jurisdiction/)

- [Can a Reverse ICO Token Be Classified as a Security, and What Test Determines This?](https://learn.greeks.live/path/can-a-reverse-ico-token-be-classified-as-a-security-and-what-test-determines-this/)

- [Which of the Four Howey Test Prongs Is Most Debated for Utility Tokens?](https://learn.greeks.live/path/which-of-the-four-howey-test-prongs-is-most-debated-for-utility-tokens/)

- [How Does the ‘Howey Test’ Apply to DAO-issued Tokens?](https://learn.greeks.live/path/how-does-the-howey-test-apply-to-dao-issued-tokens/)

- [What Is the Howey Test and How Is It Applied to Determine If a Token Is a Security?](https://learn.greeks.live/path/what-is-the-howey-test-and-how-is-it-applied-to-determine-if-a-token-is-a-security/)

- [What Is the Howey Test and How Does It Determine If a Token Is a Security?](https://learn.greeks.live/path/what-is-the-howey-test-and-how-does-it-determine-if-a-token-is-a-security/)

- [How Does the US Howey Test Relate to the “Financial Instrument” Definition in Other Jurisdictions?](https://learn.greeks.live/path/how-does-the-us-howey-test-relate-to-the-financial-instrument-definition-in-other-jurisdictions/)

- [How Does the ‘Expectation of Profit’ Element of the Howey Test Apply to Utility Tokens?](https://learn.greeks.live/path/how-does-the-expectation-of-profit-element-of-the-howey-test-apply-to-utility-tokens/)

## Discover More

### [Distinguish between a Utility Token and a Security Token in the Context of a Reverse ICO](https://learn.greeks.live/path/distinguish-between-a-utility-token-and-a-security-token-in-the-context-of-a-reverse-ico/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Distinguish between a Utility Token and a Security Token in the Context of a Reverse ICO](https://learn.greeks.live/wp-content/uploads/2025/10/Modular-Architecture-of-Layered-Decentralized-Exchange-Asset-Structures-Comprising-Tiers.webp)

Utility tokens grant access/use; Security tokens represent an investment contract (equity, debt, profit share) and require stricter regulation.

### [How Do Regulators Monitor the Financial Health of a CCP?](https://learn.greeks.live/path/how-do-regulators-monitor-the-financial-health-of-a-ccp/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Regulators Monitor the Financial Health of a CCP?](https://learn.greeks.live/wp-content/uploads/2025/10/Precision-Metrology-Stylus-Contacting-Simulated-Crystal-Stratagem-in-Decentralized-Exchange-Volatility-Hedging.webp)

Through continuous surveillance, daily review of financial resources (margin, fund), periodic stress testing, and detailed reporting on capital and liquidity.

### [How Does the Utility of a Governance Token Differ from That of a Payment Token?](https://learn.greeks.live/path/how-does-the-utility-of-a-governance-token-differ-from-that-of-a-payment-token/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Utility of a Governance Token Differ from That of a Payment Token?](https://learn.greeks.live/wp-content/uploads/2025/10/Precision-Machined-Optical-Aperture-Assembly-High-Frequency-Digital-Asset-Options-Execution-Mechanism.webp)

Governance utility is control over the protocol's future; payment utility is transactional efficiency as a medium of exchange.

### [How Does an Exchange Determine the Initial Listing Price of an IEO Token?](https://learn.greeks.live/path/how-does-an-exchange-determine-the-initial-listing-price-of-an-ieo-token/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does an Exchange Determine the Initial Listing Price of an IEO Token?](https://learn.greeks.live/wp-content/uploads/2025/10/Geometric-Abstraction-of-Impermanent-Loss-Mitigation-in-Automated-Market-Maker-Mechanisms.webp)

The initial listing price is based on the IEO sale price, project valuation, and market sentiment, set collaboratively by the exchange and team.

### [How Do Utility Tokens Differ from Security Tokens in the Context of Regulatory Compliance?](https://learn.greeks.live/path/how-do-utility-tokens-differ-from-security-tokens-in-the-context-of-regulatory-compliance/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Utility Tokens Differ from Security Tokens in the Context of Regulatory Compliance?](https://learn.greeks.live/wp-content/uploads/2025/10/Intersecting-Translucent-Hedging-Vectors-Over-Centralized-Decentralized-Finance-Wheel-Mechanism.webp)

Utility tokens grant product access and avoid security classification; security tokens represent investment and require strict financial compliance.

### [What Is the Difference between a Utility Token and a Security Token in Cryptocurrency?](https://learn.greeks.live/path/what-is-the-difference-between-a-utility-token-and-a-security-token-in-cryptocurrency/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Difference between a Utility Token and a Security Token in Cryptocurrency?](https://learn.greeks.live/wp-content/uploads/2025/10/Cross-Sectional-Examination-of-Mechanism-Governing-Decentralized-Autonomous-Organization-Governance-Protocol-Execution.webp)

Utility tokens grant access to a service; security tokens represent ownership in an asset and are regulated like traditional securities.

### [What Is the Howey Test and How Does It Determine If a Token Is a Security?](https://learn.greeks.live/path/what-is-the-howey-test-and-how-does-it-determine-if-a-token-is-a-security/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Howey Test and How Does It Determine If a Token Is a Security?](https://learn.greeks.live/wp-content/uploads/2025/10/Macro-View-of-Digital-Asset-Collateralization-Structure-and-Liquidity-Bubble-Dynamics.webp)

The Howey Test is a four-pronged legal test (investment, common enterprise, profit expectation, efforts of others) used to classify a token as a security.

### [What Is the Functional Difference between a Utility Token and a Security Token?](https://learn.greeks.live/path/what-is-the-functional-difference-between-a-utility-token-and-a-security-token/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Functional Difference between a Utility Token and a Security Token?](https://learn.greeks.live/wp-content/uploads/2025/10/Exploded-View-Assembly-Depicting-Digital-Asset-Option-Structure-Settlement-Layer-Mechanics.webp)

Utility tokens grant access to a service, while security tokens represent ownership of a financial asset.

### [How Does a Market Maker Use IV to Determine If an Option Is 'Cheap' or 'Expensive'?](https://learn.greeks.live/path/how-does-a-market-maker-use-iv-to-determine-if-an-option-is-cheap-or-expensive/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does a Market Maker Use IV to Determine If an Option Is 'Cheap' or 'Expensive'?](https://learn.greeks.live/wp-content/uploads/2025/10/Asymmetric-Gamma-Exposure-Volatility-Surface-Structure-Modeling-Over-Dark-Pool-Liquidity-Pools.webp)

An option is 'cheap' if its market IV is below the market maker's proprietary fair IV, and 'expensive' if it is above.

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