Initial Coin Offerings - When Are Tokens Securities In The EU And US

Overview: This article presents a comparative analysis of the application of US and EU securities laws to initial coin offerings (ICOs), or token sales. An extensive token taxonomy framework is proposed to categorize digital assets in order to advance a more precise discussion on the legal classification and regulation of tokens. For the US, a full analysis of the application of the Howey test to different types of tokens gives insight into classification of tokens as a security (“investment contract”) under Section 2(a)(1) of the US Securities Act of 1933 and 3(a)(10) of the Securities Exchange Act of 1934. The analysis shows that most, if not all, so-called utility tokens can be classified as a security. A possible ‘sufficiency-of-decentralization-test’ is also explored, while taking prior case law and the multiple dimensions of decentralization of blockchain projects into account.