What Is the Significance of the “Solely from the Efforts of Others” Prong in Modern Crypto Cases?
The "solely from the efforts of others" prong is significant because it determines if investors are passive participants relying on the promoters for profit, a key characteristic of a security. In modern crypto cases, courts often interpret "solely" as "predominantly" or "substantially" to reflect the economic reality of the transaction.
If a token's value appreciation is driven by the network's development team, it is more likely to meet this prong. Conversely, if profits depend on the efforts of the token holders themselves, the token may not be classified as a security.
Glossar
Economic Reality Test
Test ⎊ The Economic Reality Test, within the context of cryptocurrency derivatives, options trading, and broader financial engineering, represents a rigorous assessment of theoretical pricing models against observed market behavior.
Mining Activity
Extraction ⎊ Mining activity, within the cryptocurrency ecosystem, represents the computationally intensive process of validating and adding new transaction records to a distributed ledger, typically a blockchain.
Decentralization Impact
Architecture ⎊ Decentralization impact within cryptocurrency, options trading, and financial derivatives fundamentally alters system architecture, shifting from centralized intermediaries to distributed ledger technologies.