What Is the “Howey Test” and How Does It Relate to Token Classification?

The Howey Test is a US Supreme Court standard used to determine if a transaction qualifies as an "investment contract" and is therefore a security. It requires four elements: an investment of money, in a common enterprise, with an expectation of profit, derived solely from the efforts of others.

If a token offering meets all four criteria, it is classified as a security and subject to SEC regulation. This classification dictates legal requirements for issuance and trading.