How Does the Howey Test Apply to Cryptocurrency Tokens?

The Howey Test determines if a transaction is an "investment contract" and thus a security under US law. It has four prongs: an investment of money, in a common enterprise, with the expectation of profit, to be derived from the efforts of others.

For tokens, the 'common enterprise' and 'efforts of others' prongs are critical. If a token sale meets these criteria, it is likely deemed a security and subject to registration requirements.

Many ICOs have been found to satisfy this test.