Security (the Howey test)
The Howey test is the four-part US Supreme Court standard for deciding whether an arrangement is an investment contract - and therefore a security - based on an investment of money in a common enterprise with a profit expectation from the efforts of others.
The Howey test is the standard US courts use to decide whether an arrangement is a "security" under federal law. It comes from a 1946 Supreme Court case, SEC v. W.J. Howey Co., and it still governs whether a token counts as a regulated investment today.
An arrangement is an "investment contract" - one type of security - if it has four elements: (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profit, (4) derived primarily from the efforts of others. All four prongs must be present, and courts look at economic reality, not labels.
For RWA tokenization this is the first question a founder has to answer. A token that entitles the holder to rent, interest, or a share of someone else's profits almost always meets Howey and is a security token. Calling it a "utility" or "reward" token does not change the analysis if the economics are an investment.
If a token is a security, the issuer must either register the offering with the SEC or fit an exemption - most commonly Regulation D, which is how most US tokenized raises are done as a private placement. Getting Howey wrong is the single most expensive mistake in the space, because an unregistered securities offering can be unwound and penalized.
Whether a specific token passes Howey is fact-dependent and should be assessed on its own terms.
Source: U.S. SEC (sec.gov), as of 2026.
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Educational content, not financial or legal advice.