How it works
From SEC v. W.J. Howey Co. (1946), an investment contract exists when there is an investment of money, in a common enterprise, with an expectation of profit, derived from the efforts of others. The SEC applies it to token sales, staking programs, and lending products. A token can be a security when sold to investors and not when used on a functioning network, which is why the analysis looks at how the asset was sold and marketed. Securities status does not change income tax treatment, which follows property rules regardless.
Why it matters
Classification affects registration, exchange listing, and liability, and it is the question a token opinion letter answers.
Related: security versus utility tokens, opinion letter.
