It is very salutary for the industry as a whole for securities and commodities regulators to be focusing on fraud right now. As they should, they are looking at the promises and representations being made to consumers and investors, and are trying to weed out the obvious scams and exaggerated claimants. It’s somewhat reassuring to see them taking this approach, given the sheer number of projects making unrealistic claims or misrepresenting obvious investment contracts as utility or consumer tokens. Regulators have repeatedly stated in the past few months that when a token fits the conditions of the Howie test [“an investment contract is “a contract, transaction or scheme whereby  a person invests his money  in a common enterprise and  is led to expect profits solely from the efforts of the promoter or a third party.”], it is an investment contract subject to federal securities regulations.
The challenge for both regulators and entrepreneurs is that some of the digital cryptographically protected units of value known as tokens that are emerging have a dual nature: they’re both consumptive because they grant access to a technology service, for example, and at the same time provide an investment opportunity for purchasers. There is today globally a legal vacuum with respect to certain tokens that have a strong utility and consumptive value because they don’t fully fit the definition of ‘investment contract’ under Howie or its international equivalents. So regulators globally should at some point clarify whether and how these unique, hybrid tokens should be regulated, bearing in mind that they’re a formidable innovation that could have an enormous positive impact on society.