An initiative of Coinbase, Coin Center, Union Square Ventures and Consensys
Part 1: How to determine if a token
is a security
The Howey Test
The US Supreme Court case of SEC v Howey established
the test for whether an arrangement involves an investment contract. An
investment contract is a type of security. In the context of blockchain tokens,
the Howey test can be expressed as three independent elements (the third
element encompasses both the third and fourth prongs of the traditional Howey
test).
All three elements must be met in order for a token to
be a security.
1. An
investment of money
2. in a common enterprise
3. with an expectation of profits predominantly from
the efforts of others.
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