Recently, there has been growing interest in whether, and in what circumstances, crypto-tokens may constitute “investment contracts” under the U.S. Supreme Court’s Howey test, rendering them securities subject to regulation in the United States. The following resources take a deep dive into that issue, exploring the structural, marketing and other key considerations that may make crypto-tokens more or less likely to be securities under Howey. As these resources demonstrate, the Howey test is highly fact-dependent, indicating that certain crypto-tokens may be securities under Howey whereas others – if properly designed – may not.
- Peter Van Valkenburgh, A Securities Law Framework for Blockchain Tokens, COINCENTER (Jan 25, 2016) Discusses certain blockchain token “rights” that likely to decrease the risk of blockchain tokens being categorized as securities under the Howey test.
- Reuben Bramanathan, Introducing the Blockchain Token Securities Law Framework, THE COINBASE BLOG (Dec. 12, 2016) Discusses the result of a joint initiative of Coinbase, Coin Center, Union Square Ventures and Consensys.
- Houman B. Shadab, Why Cryptoequity May Not Be Securities, Lawbitrage (Nov. 12, 2014) In this piece, NUY Law Professor Houman B. Shadab discusses a number of factors that would make certain tokens less likely to constitute securities.
- Jason Somensatto, How are Cryptocurrency Investments Different than securities Investments?, COINCENTER (Feb. 11, 2015) Distinguishes tokens sold primarily for an “consumption motive” from tokens likely to be considered securities.
- Josh Boehm, Dax Hansen and Josh Boehm Speak at Stanford Cyber Initiative About Blockchain Tokens, VIRTUAL CURRENCY REPORT (Apr. 12, 2017) Linking to a slide deck featuring analysis of token sales under securities and other laws. Also available here.
- J. Dax Hansen & Carla L. Reyes, Legal Aspects of Smart Contract Applications: Digital Asset Sales and Capital Markets, Supply Chain Management, Land Registries, Government Records and Smart Cities, and Self-Sovereign Identity (May 2017) Discusses the application of the Howey test to digital asset sales.
- A Securities Law Primer, SELC e-resource library, CoummunityEnterpriseLaw.Org. Discusses in detail the United Housing Foundation v. Forman case, which held “when a purchaser is motivated by a desire to use or consume the item purchased . . . the securities laws do not apply.”
- Brito, Jerry and Shadab, Houman B. and Castillo, Andrea, Bitcoin Financial Regulation: Securities, Derivatives, Prediction Markets, and Gambling (January 15, 2015). COLUMBIA SCIENCE AND TECHNOLOGY (2014). Proposes that certain bitcoin denominated instruments that may otherwise fall within the Howey test for investment contract be excluded if they are “bitcoin economy transactions” – transactions in which the entire use of the instrument is within the blockchain ecosystem in which the token was created.
- Peter Van Valkenburgh, Could your decentralized token project run afoul of securities laws?, COINCENTER (Sept. 20, 2016) Describes a number of elements that will make a token less likely to fit the Howey test, including building “tokens that have a use-value and are not mere speculative investments.”