What is the Howey Test? - Crypto in Plain English - Episode 222 - by cryptohunt.it

What is the Howey Test?

Welcome to the cryptohunt jam where we spend one minute a day explaining crypto. In plain English.

You've probably just listened to yesterday's episode on Uniswap, the decentralized crypto exchange that is looking into paying the holders of their UNI token a portion of their earnings.

Enter the "Howey test"! Named after the defendant in a United States Supreme Court case from 1946, it is a set of questions that determines if a transaction is an "investment contract".

And that is a very important classification. One of the governments' jobs is to keep its citizens safe, and that includes safety from investment scams. They do this by forcing those offering investments to disclose a lot of information and register their business with the authorities.

As you know, we are a huge fan of learning and doing your own research, and that's exactly what these rules help with, making it harder for people to hide important information. It also forces them to comply with the law.

The technical term is "security". Once such an investment has been classified as a security by applying the Howie test, there is a lot that has to be done and provided by the issuer.

And that's exactly at stake here with Uniswap. As soon as they hand out money to token holders, the US government is almost certainly going to classify the UNI token as a security and enforce all the requirements that come with that. For Uniswap, that may be impossible, or just not worth doing and for that reason alone they might decide to cancel this proposal, at the risk of angering their token holders.

And now that you understand the background, keep an eye on the story in the coming days! It'll get interesting!

Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.