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.
Glossar
Howey Test
Investment ⎊ Contract analysis hinges on demonstrating the presence of an investment of money in a common enterprise with an expectation of profits derived substantially from the efforts of others.
Icos
Issuance ⎊ Initial Coin Offerings (ICOs) represent a method for projects to issue new digital tokens to raise capital from early investors.
The Howey Test
Jurisdiction ⎊ The Howey Test, originating from the 1946 Supreme Court case SEC v.