Definition ∞ A legal standard used to determine whether a particular transaction constitutes a security offering, thereby subjecting it to specific regulatory requirements. In the United States, this framework originates from the Howey Test, evaluating whether there is an investment of money in a common enterprise with an expectation of profits primarily from the efforts of others. It helps classify financial instruments for regulatory purposes.
Context ∞ The application of the investment contract framework to digital assets is a central and ongoing legal debate globally. Regulators often use this test to determine if a cryptocurrency or token falls under securities laws, which significantly impacts its issuance, trading, and required disclosures. Clarity on this classification is paramount for project developers and market participants alike, shaping the regulatory trajectory of the digital asset industry.
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