What Is the Howey Test and Its Relevance to Token Classification?

The Howey Test is a US Supreme Court standard used to determine whether a transaction qualifies as an "investment contract" and is therefore subject to securities regulation. It asks if there is an investment of money, in a common enterprise, with the expectation of profit, derived solely from the efforts of others.

If a token meets this criteria, it is classified as a security token, which has significant implications for its sale, valuation (easier DCF), and regulatory compliance.