ICO project log 06: the howey test
We filmed our legal review with our counsel
A note: we are not lawyers, and nothing in this post is legal advice. The information below reflects our understanding of conversations with our own counsel and publicly available legal frameworks. If you’re launching a token, work with your own legal team. Laws vary by jurisdiction, and the regulatory landscape is actively evolving.
Over the next 60 days, we’re documenting every step of what it looks like to launch a token the right way, in the United States, in 2026.
This is the project log: a written companion to each daily video. Short updates on what we’re working on, what’s blocking us, and what we’re learning along the way.
Day 7/60
Dennison is in New York, meeting with Rodrigo Seira from Cooley at their offices in Hudson Yards. The focus today: walking through the legal framework that sits at the center of every token launch in the United States.
The test that governs everything
If you’re launching a token and you want to do it in the US, the conversation starts with the Howey test. It’s the four-part framework courts use to determine whether a transaction qualifies as an investment contract under securities law. All four prongs need to be met: an investment of money, in a common enterprise, with the expectation of profit, derived from the efforts of others.
For a token sale, the first two are difficult to contest. You’re selling something, so there’s an investment of money. Common enterprise is generally presumed. That means the legal analysis often comes down to the last two prongs: whether the purchaser is buying with the expectation of profit, and whether that profit is derived from someone else’s efforts.
Buying to use vs. buying to profit
The expectation of profit prong is where the utility token argument lives. It traces back to a Supreme Court case called United Housing Foundation v. Forman (1975), where people bought shares in a housing co-op. The court ruled that even though the instruments were technically called “shares,” the buyers weren’t making investments. They wanted a place to live. They were buying for utility, so securities laws didn’t apply.
That principle has been tested and expanded through subsequent case law. The standard is whether a reasonable purchaser, given all available information, is buying something because they want to use it or because they’re making a passive investment. It’s a subjective, facts-and-circumstances analysis.
One thing our counsel was clear about: the “utility token” label got a bad reputation during the 2017 ICO boom. Projects would call their token a utility token and assume that was enough to sidestep securities laws. It wasn’t then and it isn’t now. Even tokens with genuine utility can still be sold as part of a securities offering depending on how the sale is structured and how the token is marketed.
Whose efforts matter
The fourth prong looks at whether expected profits are derived from the entrepreneurial or managerial efforts of others. The case law draws a distinction between entrepreneurial efforts, where someone is operating a business, taking risks, and making decisions that drive value, versus ministerial or administrative efforts, like providing a technical service. The analogy our counsel used: paying for an AWS subscription is not the same as giving money to someone who’s running an enterprise on your behalf.
Not all tokens are securities, and not all token sales are either
Beyond the Howey analysis, there’s a broader taxonomy question the industry is still working through. SEC Chair Atkins has outlined his perspective on how different types of tokens should be classified, and Miles Jennings at a16z has published frameworks on the same question.
At a high level, one key distinction is between tokens that are inherently securities (or tokenized versions of existing securities) and those that may not be: utility tokens, collectibles, stablecoins. But there’s an important conceptual point that often gets missed: a token sale can be a securities transaction even if the token itself is not inherently a security. The Howey test has been applied to transactions involving whiskey barrels, chinchillas, even earthworms. None of those things are securities on their own. But when packaged with promises about what a promoter will do, those transactions can become securities transactions.
That distinction matters. It means the analysis isn’t just about what the token does. It’s about how it’s sold, how it’s marketed, and what a reasonable person would expect when they buy it.
The throughline
This is the work most teams do behind closed doors, if they do it at all. The Howey test isn’t a checkbox. It’s a framework that requires you to think carefully about what you’re building, how you’re talking about it, and who you’re selling it to.
We’re showing this because it’s the core of what we believe: if you’re going to launch a token in the United States, the legal analysis is the foundation. Not an afterthought, not a box to check, not something you offshore to avoid.
We’re documenting everything: the legal sequencing, the tax strategy, the custody setup, the go-to-market, all of it. If you’re building in crypto and thinking about launching a token, this is the playbook we wish existed.
Disclaimer: This content is for informational and educational purposes only. Nothing in this series constitutes financial advice, investment advice, legal advice, or a solicitation to buy or sell any token or security.