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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?