SEC Staff: Promises of Profit Can Make Tokens Securities

The Securities and Exchange Commission staff clarified when promises of future profit or increases in value can make a crypto token an investment contract and therefore a security under U.S. law. The guidance focuses on how tokens are marketed and presented to purchasers.

The staff framed the analysis around the Howey test, which asks whether purchasers invest money in a common enterprise with a reasonable expectation of profit derived from the efforts of others. Statements that tie a token’s potential return to the project team’s actions can meet that standard. Examples cited include commitments about future price appreciation, planned buybacks, token-based dividends, staking or reward programs described as income streams, and roadmaps that promise revenue sharing.

The guidance lists types of communications and arrangements that can create an expectation of profit. Promotional language on websites or social media, whitepaper claims linking future utility to value increases, developer assurances about upcoming features marketed to boost value, and centralized control by founders or a development team are identified as indicia of a securities offering. By contrast, tokens sold for immediate, concrete utility and deployed on networks where no central party’s efforts drive returns are less likely to be securities.

The staff emphasized that the determination is a facts-and-circumstances inquiry and no single factor is dispositive. The review considers how a token was sold, how it was presented to buyers, and whether subsequent statements or program changes altered purchasers’ expectations. A token initially marketed as a utility can become a security if later actions create an expectation of profit, and a token marketed as an investment may be structured to reduce securities risk if decentralization and genuine utility are demonstrable.

The guidance asks issuers, promoters and intermediaries to review marketing, disclosures and governance arrangements to assess whether buyers are being primed to expect profits tied to the issuer’s or team’s efforts. It also notes that third-party statements and social media campaigns can affect the analysis if they were used to induce purchases. The staff referenced prior enforcement actions applying Howey to digital assets and reiterated that labeling a token as a utility does not by itself remove it from securities regulation.