How Does the ‘Howey Test’ Apply to Determining a Token’s Classification?
The Howey Test is a four-pronged legal standard used to determine if a transaction qualifies as an "investment contract," and thus a security. The criteria are: an investment of money, in a common enterprise, with an expectation of profit, derived solely from the efforts of others.
If all four elements are met, the token is deemed a security and subject to strict regulation. Issuers of utility tokens aim to demonstrate that the token's value is based on its use, not purely on speculative profit.
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.
Utility Tokens
Function ⎊ Utility Tokens represent a digital asset issued to fund blockchain projects or gain access to a specific product or service within an ecosystem, differing from security tokens through their primary purpose.
The Howey Test
Jurisdiction ⎊ The Howey Test, originating from the 1946 Supreme Court case SEC v.
Sec Enforcement Actions
Jurisprudence ⎊ Actions taken by the Securities and Exchange Commission establish critical precedents regarding the application of existing securities laws to novel digital assets and their associated financial instruments.