US: SEC Classification and the Howey Test
In the United States, the classification of tokenized assets is governed by the Securities and Exchange Commission (SEC). The SEC applies the Howey Test — a legal framework derived from a landmark 1946 U.S. Supreme Court decision — to determine whether a digital asset constitutes a security under U.S. law.
The Four-Part Howey Test
A token is classified as a security if it meets all of the following criteria:
Investment of Money
There is a contribution of capital or other value from investors.
Common Enterprise
The investment is pooled with others or relies on a shared project or entity.
Expectation of Profit
Investors anticipate returns in the form of income, appreciation, or distributions.
Efforts of Others
The expected profit is driven primarily by the actions, development, or management of third parties (typically the issuer or project team).
Implications for Issuers
If a tokenized asset satisfies the Howey Test, it is classified as a security under U.S. federal securities law. This means the token must comply with SEC regulations, which include:
Registration with the SEC (e.g., public offering under Regulation A+ or Form S-1) or
A valid exemption from registration, such as:
Regulation D – Private placements to accredited investors
Regulation S – Offshore offerings to non-U.S. investors
Regulation CF – Crowdfunding offerings with limits
Regulation A+ – Tiered exemptions for public solicitation with limited raise caps
Issuers must also implement investor disclosures, transfer restrictions, KYC/AML protocols, and secondary trading compliance (e.g., ATS listings).
Key Insight for Issuers
The vast majority of tokenized assets offering ownership, profit participation, or debt repayment fall under the security classification in the U.S. If your token meets the Howey Test, it is essential to structure and offer it in full compliance with SEC requirements to avoid enforcement actions, investor claims, and legal penalties.
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