Quick Tip: Is Your Token a Security?
The SEC has used the Howey Test for investment contracts to determine whether the offer or sale of certain blockchain tokens are investment contracts and thus, securities.
Under the Howey Test, the offer or sale of your tokens are offers or sales of securities if there is an investment of money in a common enterprise and the buyer reasonably expects profits from the efforts of others.
In English, it boils down to this: if you are selling a token to someone who buys it expecting you to make a profit on his or her behalf and that expectation is reasonable, then you are probably selling a security.
For example, if you buy tokens from Chuck-E-Cheese, you expect to use them to play games. If you buy them expecting to make a profit, that expectation isn't reasonable because Chuck-E-Cheese hasn't said anything to you to give you that expectation. In the scenario here, the tokens being sold are not securities.
If Chuck-E-Cheese attempts to sell you the same tokens by telling you that they will make you a profit from them, such as by putting them on a secondary exchange where you can resell them, then Chuck-E-Cheese would be offering you a security.
To schedule a free strategy session, click here.
This article is provided for informational purposes only and should not be construed as legal advice. Read our disclaimer here.