Are NFTs Securities? What the Howey Test Actually Means for Token Owners

This article covers the legal framework U.S. regulators use to decide whether an NFT — a non-fungible token, meaning a unique digital asset recorded on a blockchain — counts as a security. It matters because if an NFT is a security, selling it without registration is a federal offense, and buying one means you may have fewer protections than you think.

Most explanations frame this as a yes-or-no question: are NFTs securities? That framing misses the point entirely. U.S. securities law doesn't classify assets by their technology. It classifies transactions by their economic reality. A baseball card isn't a security. A share in a baseball card investment fund is. The object didn't change — the deal around it did.

• The SEC doesn't regulate "things." It regulates investment contracts — arrangements where someone puts money into a common enterprise expecting profits from someone else's work.
• An NFT that represents a piece of digital art you buy to own is, on its face, not a security — the same way buying a painting at a gallery isn't.
• An NFT sold with promises of future value, revenue sharing, or project-driven appreciation starts to look exactly like a security.
• The technology (blockchain, smart contracts, IPFS hosting) is legally irrelevant. What matters is the economic substance of the deal between buyer and seller.

What this means practically: Don't ask "is this NFT a security?" Ask "was this NFT sold as an investment contract?"

Every securities analysis in the U.S. starts with the Howey Test, a four-part standard from a 1946 Supreme Court case about orange groves. The SEC uses it for crypto. Courts use it for crypto. If you understand Howey, you understand 90% of the legal landscape here.

An arrangement is an investment contract (and therefore a security) if it involves:

• An investment of money — You paid ETH, USD, or anything of value. This prong is almost always satisfied when someone buys an NFT.
• In a common enterprise — Your financial fortunes are tied to other buyers or to the project team. If everyone who minted profits or loses together, this prong is met.
• With an expectation of profits — You bought it anticipating it would go up in value, not purely for personal use or enjoyment. Marketing language matters enormously here.
• Derived from the efforts of others — The value increase you expect depends on the project team building something: a game, a metaverse, a brand. You aren't creating that value yourself.

All four prongs must be met. If any one fails, it's not a security under Howey.

What this means practically: A profile-picture NFT bought because you like the art arguably fails the "expectation of profits" prong. The same NFT bought because the team promised a token airdrop, staking rewards, and a play-to-earn game likely satisfies all four.

This is where most explanations go wrong: they treat the Howey Test as a checklist you run against the NFT itself. But the test applies to the totality of circumstances — the marketing, the promises, the Discord announcements, the roadmap, the post-sale conduct of the team.

• An NFT with no roadmap, no promises, and no team involvement post-sale has a strong argument it's not a security. The buyer just bought a digital collectible.
• The same NFT, if the project's Twitter account constantly posts about "building value for holders" and "exciting developments coming that will increase floor price," starts failing the Howey Test in real time.
• The SEC has explicitly stated it looks at how assets are marketed and sold, not just their technical characteristics. Commissioner Gensler's SEC repeated this in multiple enforcement actions between 2022 and 2024.
• Fractionalized NFTs — where a single NFT is split into fungible shares that many people buy — almost certainly qualify as securities. You're buying a share of an asset with no utility beyond hoped-for appreciation.

What this means practically: Project teams can turn a non-security into a security through their own marketing. Buyers should pay attention to how a project describes itself.

The SEC has been selective but deliberate in its NFT enforcement. The agency hasn't declared all NFTs to be securities, but it has gone after specific projects where the investment-contract framework clearly applied.

• In August 2023, the SEC charged Impact Theory — a media company — for selling NFTs that were marketed as investments. The company had told buyers the NFTs would grow in value as the company succeeded. Impact Theory settled for approximately $6.1 million.
• In September 2023, the SEC charged Stoner Cats 2 LLC (a project backed by actress Mila Kunis) for selling NFTs that funded an animated series, with the SEC arguing buyers expected profits from secondary market trading driven by the show's success. Settlement was approximately $1 million.
• In both cases, the SEC focused on the marketing and the economic structure — not the fact that blockchain technology was involved.
• The SEC has not brought enforcement actions against straightforward digital art NFTs sold without investment promises (like Art Blocks generative art or one-of-one pieces on SuperRare).
• Two SEC commissioners dissented in both cases, arguing the agency was overreaching. This signals the legal boundary is genuinely contested, not settled.

What this means practically: If a project promises returns, funds a business with mint proceeds, or creates secondary-market incentive structures, the SEC is watching and has shown it will act.

NFTs exist on a spectrum, not in a binary. On one end: pure art or collectibles. On the other: thinly disguised investment schemes. Most projects fall somewhere in between, which is exactly why this is hard.

• Low securities risk: One-of-one art, generative art with no roadmap, collectibles sold without promises of future development, NFTs where the team has no ongoing role.
• Medium securities risk: PFP (profile-picture) projects with roadmaps, community treasuries, and vague promises of future utility — the analysis depends heavily on specific marketing language and team conduct.
• High securities risk: Fractionalized NFTs, NFTs with explicit revenue-sharing mechanisms, NFTs sold to fund a business that will supposedly drive value back to holders, NFTs with staking yields.

What this means practically: The more a project looks like "buy this and we'll make it valuable," the closer it gets to being an unregistered securities offering.

Whether you're buying or building, certain signals raise the legal stakes considerably. These aren't guarantees of securities classification, but they're the factors regulators and courts focus on.

• The project has a detailed roadmap promising future developments that will increase NFT value
• Marketing emphasizes financial returns, floor price, or investment potential
• Mint proceeds fund a business whose success is supposed to benefit holders
• The team retains significant control over the NFT ecosystem post-sale (royalty structures, token gates, game economies)
• Secondary market trading is actively encouraged as a profit mechanism
• The NFT grants rights to revenue, dividends, or profit-sharing

What this means practically: If you're a creator, consult a securities attorney before launching any project with a roadmap and investment-style marketing. If you're a buyer, understand that holding something that's later classified as a security could affect your ability to trade it.

• Whether an NFT is a security depends on the deal surrounding it — the promises, marketing, and economic structure — not the technology or the art itself.
• The Howey Test's four prongs (investment of money, common enterprise, expectation of profits, from others' efforts) must all be met; most pure art and collectible NFTs fail at least one prong.
• The SEC has enforced against NFT projects marketed as investments (Impact Theory, Stoner Cats) but has not targeted straightforward digital art sales.
• The legal boundary is genuinely unsettled — commissioners themselves disagree, courts haven't fully weighed in, and project-specific facts drive the outcome every time.