Howey Test
A US legal standard from a 1946 Supreme Court case used to decide whether an asset counts as a security.
The test comes from SEC v. W.J. Howey Co. (1946), a dispute over Florida orange grove contracts. An arrangement is an investment contract, and therefore a security, when people put money into a common enterprise expecting profit from someone else's work.
Regulators apply those four prongs to tokens. The SEC has argued many ICO tokens met them. Defenders counter that a sufficiently decentralized network has no "someone else" left to depend on. Courts still split on where the line falls.
Related terms
The US federal agency that oversees securities markets and has become crypto's most prominent enforcement regulator.
Security TokenA token representing a regulated investment — equity, debt, or a share of profits — and subject to securities law.
ICO (Initial Coin Offering)A crowdfunding method where a project sells a new token to the public to raise capital.
Utility TokenA token that grants access to a product or service rather than ownership, used to pay for usage inside a network.