The Howey test asks three questions about a transaction: is there an investment of money, is it in a common enterprise, and does the buyer reasonably expect profit from someone else’s work. A token itself is not automatically a security under this test – the SEC and CFTC said in a joint interpretation issued March 17, 2026 that most crypto assets are not securities by nature, but a sale of one can still count as a securities transaction depending on how it was marketed, according to summaries from Orrick, Herrington & Sutcliffe and Sullivan & Cromwell.
Where the test comes from
The test takes its name from SEC v. W.J. Howey Co., decided by the Supreme Court on May 27, 1946, per the opinion published by Cornell Law School’s Legal Information Institute. The case involved a Florida citrus operation that sold plots of orange groves to buyers who lacked the skill or equipment to farm them, paired with a service contract for the seller’s affiliate to do the actual cultivating and marketing. According to the opinion, 85% of the acreage sold during the three-year period ending May 31, 1943 was covered by one of these service contracts. Buyers were told profits during the 1943-1944 season ran to 20%, though the opinion notes only a 10% annual return was expected over a ten-year period. The Court held this was an investment contract – and therefore a security – because buyers put in money, pooled into a common enterprise, expecting profit from the seller’s cultivation and marketing work rather than any effort of their own.
Nothing in that opinion mentions tokens or blockchains. Applying a citrus-grove test to a crypto sale means asking the same three questions of the transaction, not the technology: did the buyer pay money, is it pooled with others’ money toward a common outcome, and is the buyer relying on someone else’s ongoing work for a return.
The gap the 2019 framework tried to fill
The SEC’s first attempt to translate Howey for crypto came in a 2019 staff framework document on investment-contract analysis for digital assets, published on the SEC’s site. That framework treated the first two Howey prongs – investment of money, common enterprise – as usually satisfied by a token sale, and put nearly all the analytical weight on the third: whether a purchaser reasonably expects profit from the efforts of an “Active Participant” who develops, promotes or supports the market for the asset. It listed characteristics that made that reliance more likely, such as an active participant controlling code updates, arranging for the asset to trade on a market, or promising further development to grow the asset’s value. The 2019 framework was staff-level guidance, not a Commission-level statement, and Orrick’s April 3, 2026 client alert says the 2026 interpretation supersedes it.
What the March 2026 interpretation changed
The SEC issued a joint interpretation with the CFTC on March 17, 2026; the CFTC’s role was to state it would administer the Commodity Exchange Act consistently with the SEC’s framework, according to Sullivan & Cromwell’s March 19, 2026 memo. Orrick’s alert describes it as a 68-page interpretive release. WilmerHale’s March 24, 2026 client alert notes the release is not a binding, formal rulemaking, though as a Commission-level interpretation it carries more weight than prior staff statements.
The interpretation sorts crypto assets into five categories, per Orrick, WilmerHale and Sullivan & Cromwell:
- Digital commodities – tokens whose value comes from the programmatic operation of a functional network and supply-and-demand dynamics, not from a promoter’s managerial efforts.
- Digital collectibles – NFTs, memecoins and similar assets with no intrinsic economic rights such as yield or a claim on future profits.
- Digital tools – utility tokens that provide access or function within a network, such as membership tokens or ENS domains, without economic rights attached.
- Stablecoins – tokens designed to hold a stable value against a reference asset; payment stablecoins meeting the GENIUS Act’s definition are excluded from the securities definition by statute, per Sullivan & Cromwell, though other stablecoins remain fact-specific.
- Digital securities – a financial instrument that already meets the statutory definition of a security, merely represented on a blockchain; these remain securities regardless of format, per WilmerHale.
Only the last category is treated as inherently a security. The other four are generally non-securities on their own, according to all three firm summaries. But the interpretation is explicit that this classification of the asset does not settle whether a particular sale of that asset is a securities transaction.
The asset is not the transaction
This is the part of the 2026 interpretation the firms treat as central. A non-security token – say, one in the digital commodities category – can still be sold as part of an investment contract if the seller makes representations or promises about future managerial work that create a reasonable expectation of profit, per Sullivan & Cromwell’s memo. Ballard Spahr’s March 26, 2026 alert lists four things the agencies say shape that analysis: the nature of the issuer’s promises, how specific they are, who is making them, and when they were made relative to the sale. Orrick’s alert frames a similar test with three factors: whether representations are explicit and unambiguous about managerial efforts, whether they contain enough detail to show the issuer can deliver, and whether they explain how the effort produces profit for buyers.
The interpretation also says this status is not permanent. Sullivan & Cromwell’s memo describes an investment contract ending once purchasers can no longer reasonably see the issuer’s promises as still attached to the token – because the issuer finished what it promised, or because it abandoned the effort. Orrick’s alert makes the same point: a token sold under an investment contract does not necessarily carry that status into secondary-market resales. Whether an issuer has “fulfilled” its promise is judged against how the issuer itself defined the goal in its own marketing, not a general market view of what counts as done, per Sullivan & Cromwell.
A narrower reading of “common enterprise”
WilmerHale’s alert flags a further shift: the interpretation affirms that a common enterprise is a required, separate element of an investment contract, which the firm says may make it harder for secondary-market token trades to satisfy Howey. A 2025 essay in the Fordham Journal of Corporate & Financial Law by David B. Guenther argues the opposite trajectory had been underway for years – that the SEC’s crypto enforcement program had effectively treated common enterprise as satisfied by default, collapsing the test down to just the profit-from-others’-effort prong. Whether the 2026 interpretation actually reverses that drift, or simply restates a position courts had already been moving toward, is not something this page can settle; it depends on how courts apply the interpretation in future cases, none of which appear in the sources reviewed here.
Mining, staking, wrapping and airdrops
The interpretation also addresses four recurring crypto activities. Protocol mining and validation activities generally involve neither an investment of money nor reliance on someone else’s managerial effort, so they fall outside Howey, per Ballard Spahr. Staking requires more case-by-case analysis depending on whether a program involves managerial effort beyond routine technical functions, according to Ballard Spahr and Sullivan & Cromwell; Sullivan & Cromwell notes the interpretation treats the sale of a “staking receipt token” – defined there as a receipt for a non-security crypto asset not itself subject to an investment contract – as generally outside the securities laws. Wrapping – depositing a non-security token with a custodian or a cross-chain bridge – generally does not by itself create a securities offering, per Sullivan & Cromwell’s memo. Airdrops of non-security tokens where the recipient pays nothing generally fail the “investment of money” prong – though the agencies leave room to challenge airdrops bundled into broader promotional campaigns or tied to other consideration, per Ballard Spahr’s alert.
What this page does not tell you
This page is built from five law firms’ client alerts summarizing the interpretation, plus the SEC’s 2019 staff framework and the Supreme Court’s Howey opinion – not the full text of the March 2026 interpretive release itself, which runs to 68 pages according to Orrick. Any nuance in that document not captured in the summaries is not reflected here.
The interpretation is agency guidance, not a court ruling and not a formal rule. WilmerHale’s alert is explicit that it does not carry the weight of rulemaking, and the agencies themselves say it does not replace the Howey test. As of the alerts reviewed here (dated between March 19 and April 3, 2026), no court decision applying the 2026 interpretation appears in the record, so this page cannot describe how it holds up in litigation.
The firms do not agree on every detail. Orrick’s April 3, 2026 alert says the SEC named 16 specific assets as digital commodities; WilmerHale’s March 24, 2026 alert lists 18 named assets in that category. Both numbers are given here rather than one chosen over the other.
Classification under the taxonomy is fact-specific and, per the interpretation as described by Sullivan & Cromwell, can change as an issuer’s conduct changes. No category assigned to any token in this page should be read as fixed. Finally, whether the interpretation’s narrower reading of the common-enterprise requirement will survive contact with existing case law – which had been moving toward treating that element as satisfied automatically, per the Fordham Journal essay – is an open question this page cannot resolve.
Sources
Every fact above is attributed to one of these reports. Where they disagree, the article says so.
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