Howey Test
The US legal test for whether an asset is a security — central to nearly every crypto regulatory battle.
The Howey Test, from a 1946 US Supreme Court case, defines an “investment contract” (a security) as an investment of money in a common enterprise with an expectation of profit derived primarily from the efforts of others. If a crypto asset meets these criteria, it may be regulated as a security — triggering registration and disclosure requirements.
This decades-old orange-grove case became crypto’s central legal question: the SEC has argued many tokens are unregistered securities under Howey, spawning major enforcement actions and court battles. The recurring debate is whether a sufficiently decentralized token escapes the “efforts of others” prong. Understanding Howey clarifies why projects agonize over token design and why “is it a security?” is the multi-billion-dollar question hanging over the industry.