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In the 1940s, W. J. Howey Co owned a large amount of land in Florida, where it would grow & farm citrus trees. Howey came up with a clever way to finance its venture - keep half the land for itself, and sell the other half to investors - with a twist.

Howey would sell the land to investors & have them immediately lease it back, allowing Howey to farm the land without fully owning it. Investors would share in the profits from the sale of citrus fruit on its land. Everyone was happy! That is, until the SEC came knocking.

In 1946 the SEC sued Howey & Co in court alleging securities fraud. Regulators argued the profit-sharing aspect of the arrangement made it an investment contract, which had to be registered with the SEC. The case made it all the way to the Supreme Court. The SEC won.

In its decision, the Supreme Court laid out its framework for classifying a security: A security exists when there is an "investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others"

Let's break this down into 4 parts: 1. An investment of money 2. A common enterprise 3. An expectation of profits 4. To be derived from the efforts of others This list is also known as the "Howey Test", and it is the lense through which the SEC views crypto.

3. An expectation of profits - Again, pretty convincing for SEC jurisdiction here. I lend my crypto to others because I expect a profit, otherwise why lend? 4. Derived from the efforts of others - this is where ambiguity & political games begin.

What makes a crypto profit "derived from the efforts of others"? Is it derived from the project's developers? The miners? The borrowers themselves?