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Howey Test

The Howey Test is a U.S. legal standard for determining whether a transaction constitutes an investment contract and can be used to determine whether a cryptoasset is a security. The test is based on U.S. Supreme Court precedent and, in the context of cryptoassets, is primarily but not exclusively used to determine a cryptoasset's status within U.S. markets. For an asset to pass the Howey Test and, thus, be classified as a security, the following criteria must be met:

1. Its sale constitutes an investment of money.

2. The investment is in a common enterprise.

3. Investors have a reasonable expectation of profit.

4. This profit is derived primarily from the effort of others.