FinHub Publishes Framework for Digital Asset Investment Contracts

by David R. Werner –

In what could be perceived as another positive move by the SEC towards compliance transparency in crypto, the SEC Commissioners, Bill Hinman, director of SEC’s Division of Corporation Finance and Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation have published a structure to assist market contributors in determining whether a digital asset is considered to be an appropriate investment security. Entitled “Framework for ‘Investment Contract’ Analysis of Digital Assets” was published on April 3rd.

Its content has not been approved yet, but the writers point out that the framework does not provide legal advice but only serves as a tool to help those who conduct coin offerings (ICO) and issue tokens as a guideline. They can use this to determine if they are subject to federal securities laws. Users should continue to consult the formal rules and regulations on SEC’s Strategic Hub for Innovation and Financial Technology (FinHUB).


The guideline assists in determining whether a digital asset is similar to an investment contract, thus reducing research of many confusing security classifications. It details all aspects of the Howey test in relation to digital assets and the element of common enterprise that incorporates investment contracts and all that entails.

One of the key characteristics that have been identified as especially relevant in an analysis of whether the third prong of the Howey test is satisfied is the ‘reliance on the efforts of others’ which focuses on two key issues. Does the purchaser reasonably expect to rely on the efforts of an “Active Participant”, and are those efforts “the undeniably significant ones”, those essentials managerial efforts which effect the failure for success of the enterprise as opposed to efforts the are more ministerial in nature. 

These along with many other points of discussion will be the ongoing topics found within the Framework for Investment Contract Analysis of Digital Assets document.  


Many crypto industry figures and lawmakers have relied on the SEC to clarify the association of blockchain-based tokens and securities laws, thus enabling a more congenial relationship.

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