In the United States, as long as it passes the Howey Test on four criteria, it will be identified as a security, and subject to the strict supervision of the US Securities and Exchange Commission (SEC). The four criteria are:
1. It must be an investment of money
2. With an expectation of profit
3. In a common enterprise
4. With the profit to be generated by a third party
From the Howey Test, DAO was regarded as security by the report of SEC in 2017. DAO meets the four criteria, ETH to be regarded as money, the issuer has an appreciation expectation, and the appreciation expectation is achieved through the efforts of the issuer. Although DAO's tokens are securities, it cannot be deduced that all ICO projects are issued as securities. For example, EOS does not meet the third and fourth criteria, and the EOS team said the chain was issued by the community and had nothing to do with securities. EOS appreciated because the community did well, not because of the EOS team worked hard. Recently, XRP met Howey's tests in all aspects, which could mean that SEC considers it as a security. Although SEC President Jay Clayton said at the CoinDesk’s Consensus on Tuesday that BTC is outside the SEC regulatory range generally.
Some projects are trying to bypass securities law altogether by naming their products utility tokens, which Clayton points out the act of selling tokens determine how they are classified. Just August this year, SEC denied nine bitcoin Exchange Traded-Fund (ETF) applications, as Clayton emphasizes on the vulnerability of digital currency exchanges from manipulation and lack of necessary protection measures of the assets.
While the SEC might be getting ready to move much faster on ICOs and SEC regulation tends to be strict, a series of actions have been done. Security token means it is a security issued in the form of token, possesses rather legal and more secure features. SEC's recent regulatory policies underline its objective to protect investors. Since security token could be overwhelming, CME Group, Goldman Sachs and JP Morgan as major players in the financial field began to tap into the security token business. But unlike their previous bold styles, they appear much more cautious with this new business development. So security token and security token exchange would be the next move that SEC will consider.