Securities

Securities are tradable financial instruments, such as stocks and bonds, that typically represent an investment in a common enterprise with the expectation of profit from others' efforts. Whether a given crypto token is a security is one of the most consequential questions in the industry, because securities are subject to strict registration, disclosure, and trading rules that most token projects have not followed.

In the United States, courts apply the Howey test to decide the question, and other jurisdictions use their own definitions, so the same token can be treated differently in different countries. For example, a token sold in a fundraising round where the team promises to build a product and drive up the token's value looks much like a security; by contrast, bitcoin, which had no issuing company or investment contract, is widely treated as a commodity rather than a security.

A common misconception is that a token's label decides the matter; regulators look at the economic reality of how an asset is sold and marketed, not what it calls itself, and calling something a "utility token" does not exempt it. The classification matters practically: exchanges risk penalties for listing unregistered securities, issuers may owe refunds or fines, and investors in unregistered offerings lack the disclosures securities laws normally guarantee. Many enforcement actions and much draft legislation in crypto revolve around exactly this line.