This is a test to determine if a token is a security. For this, three key elements are introduced:
- the presence of the fact of investing funds;
- the stake of the investment depends on you or the actions of other parties;
- expectations of profit from the activities of others.
The points are awarded for each element that includes several characteristics. The higher the score, the more the token corresponds to the definition of a security paper.
The test appeared at the time of a Howey—SEC case in 1946. Then, a Florida citrus farm, Howey, leased half of its land to “finance additional development,” which was ultimately recognized as an offer of securities.
Coinbase, together with the Coin Center, Union Square Ventures and Consensys in 2016, proposed to include this test in the blockchain-sphere.
By the way, using this test, a judge recognized the CTR token, advertised by boxer Floyd Mayweather, as security.