Is a Token a Security? The Howey Test

Why the Label Matters

In the United States, 'security' is a legal label, and the label decides a great deal: what an issuer (the person or group that creates and offers a token) must tell buyers, whether the offering must be registered with the Securities and Exchange Commission (SEC), and what rights buyers have if registration was skipped. The label rarely follows what a deal is called: the Supreme Court has said these laws turn on economic reality, not on a transaction's name. This page explains how the rules read as of October 2026. It covers law and regulatory views; it is not legal advice.

The Orange Grove That Named the Test

The test comes from SEC v. W.J. Howey Co., decided by the US Supreme Court on 27 May 1946. The Howey Company owned citrus groves in Lake County, Florida, and offered strips of them to the public. Each buyer was offered a land contract and a service contract, generally of ten years, under which a sister company ran the grove and pooled the fruit; 85 per cent of the acreage placed in the three years to 31 May 1943 carried a service contract. The Court held that the package was an 'investment contract', a kind of security, even though the paperwork looked like a land sale.

Four Questions in Plain Words

The Court described an investment contract as a scheme in which a person invests money in a common enterprise and is led to expect profits 'solely' from the efforts of the promoter or a third party. The SEC's March 2026 release counts three elements; splitting the last into two gives four questions, which can sort tokens in different directions. In a June 2018 speech the SEC's then Director of Corporation Finance saw no central third party whose efforts decided Bitcoin's success, while a July 2017 SEC report found that tokens issued by The DAO organisation had been offered as investment contracts.

1. Money: did the buyer hand over something of value? Howey buyers paid for strips of grove.
2. Common enterprise: were buyers' fortunes tied together? The fruit from all plots was pooled.
3. Expected profit: was a return the point? The Court said buyers were attracted solely by the prospects of a return.
4. Efforts of others: did the return depend on someone else's work? The service company had full discretion.

From ICOs to a 2026 Rulebook

The SEC applied Howey to digital assets in a 25 July 2017 report on The DAO, which found that tokens issued by that organisation were investment contracts. Years of case-by-case enforcement followed. On 14 June 2018, William Hinman, then Director of Corporation Finance, said in a speech that a token by itself is not a security, 'just as the orange groves in Howey were not', and that a network that is 'sufficiently decentralized' might no longer involve an investment contract. A staff framework of 3 April 2019 then listed factors, including whether a promoter performs essential managerial efforts. As of October 2026 the SEC page for that framework is marked withdrawn and superseded by the March 2026 release.

A Court Applies It: SEC v. Ripple Labs

On 13 July 2023 a federal district judge in New York ruled on cross-motions for summary judgment in SEC v. Ripple Labs and analysed each category of XRP distribution separately. In the 13 July 2023 order, sales to institutional buyers under written contracts, which the SEC alleged brought in USD 728 million, were held to be unregistered offers of investment contracts, because those buyers reasonably expected Ripple to use the money to improve the XRP ecosystem. Exchange sales, alleged at USD 757 million in the same 13 July 2023 order, were treated differently: buyers could not know whether their money went to Ripple, so the record did not establish an expectation of profit from Ripple's efforts. The order left resales in the secondary market undecided.

The 2025 Pivot and the March 2026 Interpretation

On 21 January 2025 the SEC formed a Crypto Task Force. On 27 February 2025 it announced the dismissal of its civil case against Coinbase, stating that the dismissal was not an assessment of the merits. Staff statements on meme coins, mining, stablecoins and staking followed during 2025. On 17 March 2026 the Commission itself issued an interpretation, effective 23 March 2026, with guidance from the Commodity Futures Trading Commission (CFTC) attached. It says it does not replace Howey, which remains binding precedent, and that it supersedes the 2019 framework. It sorts crypto assets into five categories:

1. Digital commodities: assets tied to a functional crypto system; the release names Bitcoin, Ether, Solana and XRP among its examples.
2. Digital collectibles: items designed to be collected or used, a group the release says includes meme coins, CryptoPunks and WIF.
3. Digital tools: assets with a practical function, such as memberships, tickets or Ethereum Name Service domain names.
4. Stablecoins: some may be securities depending on the facts, while the GENIUS Act (Public Law 119-27, enacted 18 July 2025) excludes payment stablecoins from permitted issuers from the definition once it takes effect, no later than 18 months after enactment.
5. Digital securities: tokenised stocks and similar instruments, which the release treats as securities whether recorded on-chain or off-chain.

Assets Versus Contracts

The March 2026 release separates a crypto asset from the transaction in which it is offered. A non-security asset becomes subject to an investment contract when an issuer induces an investment of money in a common enterprise through representations or promises of essential managerial efforts from which purchasers would reasonably expect profit. That does not turn the asset itself into a security. The representations must reach purchasers before or at the time of sale, so later promises do not convert an earlier sale. Channels the release treats as relevant include an issuer's website or official social accounts, direct private communications, public filings and a whitepaper, meaning an issuer's technical description of a project.

When an Asset Separates From the Contract

The release says an asset does not necessarily stay subject to an investment contract in perpetuity. Its non-exclusive indicia of separation include the issuer fulfilling what it promised and the issuer abandoning the work, for example through a widely disseminated announcement. Separation does not erase liability: a failure to register the original offering can still give investors rights against the issuer, and misstatements can bring anti-fraud liability. In staff FAQs of 25 September 2026, updated 28 September 2026, the Division of Corporation Finance added that separation does not occur where another party assumes the promises.

Lending Products and the Reves Test

Howey is not the only route to the label. A note, meaning a written promise to repay, is presumed to be a security under the Supreme Court's 1990 decision in Reves v. Ernst & Young unless it closely resembles a listed category of non-securities, judged on four factors. The SEC's order of 14 February 2022 against BlockFi applied both tests to BlockFi Interest Accounts, in which customers lent crypto to the firm for variable monthly interest. It found the accounts were notes under Reves and also investment contracts under Howey. In that 14 February 2022 settlement BlockFi agreed to pay USD 50 million to the SEC and USD 50 million to 32 states, neither admitting nor denying the SEC's findings. The settlement predates the March 2026 interpretation; this page does not say how the Commission would treat a similar product.

Rules in Motion

The SEC's 18 August 2026 proposal, Regulation Crypto Assets, would create a tailored offering regime for certain investment contracts involving crypto assets. As proposed on 18 August 2026, one exemption would allow offerings of up to USD 5 million over four years and another up to USD 75 million in each 12-month period. A conditional safe harbour would deem a crypto asset not subject to an investment contract if its conditions are met. As of October 2026 it is a proposal, not a final rule.

In Congress, the House passed the Digital Asset Market Clarity Act (H.R. 3633) by 294 to 134 on 17 July 2025. The Senate Banking Committee reported it with an amendment on 1 June 2026. On 15 September 2026 the Senate voted 49 to 50 not to invoke cloture on the motion to proceed, and a motion to reconsider was entered; as read in October 2026, the Congress.gov record shows no later action. The Library of Congress summary of the bill as introduced describes the CFTC regulating digital commodity transactions, with a blockchain-maturity test.