NFT Securities Classification: Applying the Howey Test to Digital Collectibles (2026)

The question of whether non-fungible tokens (NFTs) qualify as securities under US federal law has moved from theoretical debate to enforcement and litigation reality. The SEC has brought actions against NFT projects including Impact Theory and Stoner Cats, and a federal court in the Southern District of New York has found that NBA Top Shot Moments could plausibly constitute securities. For NFT creators, marketplaces, and collectors, applying the Howey test to digital collectibles is no longer an academic exercise — it’s a compliance necessity.

This analysis provides a prong-by-prong breakdown of the Howey framework as applied to NFTs, examines the SEC’s enforcement record and key judicial decisions, and identifies the practical factors that push a project toward or away from securities classification.

Key Takeaways

• NFTs are not categorically securities or non-securities. Classification depends on the specific facts and circumstances of each project, analyzed under the investment contract framework established in SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
• Both the SEC and federal courts have found that NFTs can be securities. The SEC settled enforcement actions against Impact Theory (2023) and Stoner Cats (2023), and the court in Friel v. Dapper Labs denied a motion to dismiss securities claims arising from NBA Top Shot Moments.
• Marketing language is often the decisive factor. Projects that emphasize secondary market appreciation, roadmap deliverables, or profit-sharing mechanisms face the highest securities classification risk.
• The SEC’s enforcement posture has shifted under Chairman Atkins, but Howey remains binding Supreme Court precedent and settled enforcement actions continue to define compliance expectations.
• Fractionalized NFTs present the highest securities risk because fractionalization transforms a unique collectible into a pooled investment vehicle with tradable units — strongly satisfying all four Howey prongs.

What Is the Howey Test and Why Does It Apply to NFTs?

The Howey test derives from the Supreme Court’s decision in SEC v. W.J. Howey Co., 328 U.S. 293 (1946), which established the framework for determining whether a transaction constitutes an “investment contract” — and therefore a “security” — under Section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. § 77b(a)(1)).

Under Howey, a transaction is an investment contract if it involves:

1. An investment of money
2. In a common enterprise
3. With a reasonable expectation of profits
4. Derived from the efforts of others

The Supreme Court has directed that this test be applied flexibly, focusing on “economic reality” rather than the form of the transaction. Tcherepnin v. Knight, 389 U.S. 332, 336 (1967). This substance-over-form approach means that labeling a digital asset as a “collectible,” “artwork,” or “membership pass” does not immunize it from securities classification if the economic substance of the transaction satisfies all four prongs.

How Have the SEC and Courts Applied the Howey Test to NFTs?

In re Impact Theory, LLC (August 2023)

The SEC’s action against Impact Theory marked a watershed moment for NFT securities enforcement. Impact Theory sold “Founder’s Keys” NFTs for approximately $30 million. The SEC’s cease-and-desist order found these NFTs constituted unregistered securities based on several factors:

• The founders explicitly compared NFT purchases to investing in a startup “at the earliest stages”
• Marketing materials emphasized that NFTs would increase in value as the company’s entertainment business grew
• Purchasers were told that holding the NFTs was like “getting in on the ground floor”
• The company retained control over the project’s development and value-creation activities

Impact Theory settled for approximately $6.1 million in disgorgement, prejudgment interest, and a civil penalty, and agreed to destroy remaining NFTs and eliminate royalty provisions. See In re Impact Theory, LLC, Securities Act Release No. 11226 (Aug. 28, 2023).

In re Stoner Cats 2, LLC (September 2023)

The Stoner Cats enforcement action involved an animated web series backed by celebrity involvement. NFTs were sold to fund the series and granted access to content, but were also actively promoted for secondary market value. The SEC found that purchasers reasonably expected profits from the creators’ efforts to develop and promote the web series ecosystem. Stoner Cats settled for approximately $1 million. See In re Stoner Cats 2, LLC, Securities Act Release No. 11233 (Sept. 13, 2023).

Both actions drew dissents from then-Commissioners Hester Peirce and Mark Uyeda, who argued the Commission was applying Howey too broadly to creative projects without providing clear ex ante guidance on where collectibles end and securities begin.

Friel v. Dapper Labs, Inc. (S.D.N.Y. 2023)

Perhaps the most analytically significant NFT securities decision came from a federal court rather than the SEC. In Friel v. Dapper Labs, Inc., No. 21-cv-5837 (S.D.N.Y. Feb. 22, 2023), Judge Victor Marrero denied Dapper Labs’ motion to dismiss securities fraud claims related to NBA Top Shot Moments — NFTs representing basketball highlight clips. The court found that plaintiffs plausibly alleged all four Howey prongs were satisfied, noting in particular:

• Common enterprise: Dapper Labs controlled the proprietary Flow blockchain on which Moments existed, creating vertical commonality between purchasers and the company
• Expectation of profits: Dapper Labs promoted secondary market trading and highlighted price appreciation of specific Moments
• Efforts of others: Purchasers depended on Dapper Labs to maintain the Flow blockchain, the marketplace, and NBA licensing relationships

The court emphasized that the closed-ecosystem nature of the Flow blockchain — where Moments could not be freely transferred outside Dapper Labs’ platform — strengthened the “efforts of others” analysis because purchasers were entirely dependent on the company’s continued operation.

Note: The Dapper Labs case subsequently settled in late 2023 without a ruling on the merits, so the motion-to-dismiss decision remains persuasive but not dispositive authority.

Prong-by-Prong Analysis: When Do NFTs Cross the Securities Line?

Prong 1: Investment of Money

This prong is satisfied in virtually all NFT sales. Whether a purchaser pays in fiat currency, ETH, SOL, or other cryptocurrency, courts have held that an exchange of value — including cryptocurrency — constitutes an “investment of money” under Howey. See SEC v. Shavers, No. 4:13-CV-416-Y, 2013 WL 4028182, at *2 (E.D. Tex. Aug. 6, 2013) (“Bitcoin is a currency or form of money, and . . . it can be used as money”). The first prong is rarely contested in NFT cases.

Prong 2: Common Enterprise

Federal circuits are split on what form of “commonality” satisfies this prong. The two primary forms are:

• Horizontal commonality: Pooling of investor funds with pro rata distribution of profits. Satisfied when mint proceeds fund a shared treasury used for project development.
• Vertical commonality: Investors’ fortunes are tied to the promoter’s efforts and success. The Ninth Circuit requires “strict” vertical commonality (promoter’s fortunes rise and fall with investors’), while other circuits accept “broad” vertical commonality (investors’ fortunes depend on promoter’s efforts). See SEC v. SG Ltd., 265 F.3d 42, 49-50 (1st Cir. 2001) (discussing circuit split).

NFT projects with team-controlled treasuries funded by mint proceeds typically satisfy horizontal commonality. Projects where value depends on the team’s ongoing development — as in Dapper Labs — readily satisfy vertical commonality.

Prong 3: Reasonable Expectation of Profits

This prong often proves decisive. The SEC’s Strategic Hub for Innovation and Financial Technology (FinHub) published a staff-level “Framework for ‘Investment Contract’ Analysis of Digital Assets” in April 2019 that identifies key profit-expectation indicators. While not a formally adopted Commission rule, this framework has guided enforcement priorities and includes:

• Marketing that emphasizes potential appreciation or secondary market value
• Roadmaps promising future utility, features, or ecosystem expansion
• Royalty-sharing or revenue-distribution mechanisms tied to the token
• Listing on secondary trading platforms with promoted liquidity
• Tiered pricing structures suggesting early-adopter advantages

The Supreme Court has recognized a critical distinction between investment motivation and consumptive use. In United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 852-53 (1975), the Court held that “when a purchaser is motivated by a desire to use or consume the item purchased . . . the securities laws do not apply.” An NFT purchased primarily for its artistic value, access to exclusive content, or in-game utility — with no meaningful expectation of financial return — is less likely to satisfy this prong.

Prong 4: Efforts of Others

The final prong asks whether expected profits are “derived from the entrepreneurial or managerial efforts of others” that are “undeniably significant” to the enterprise’s success. SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 (9th Cir. 1973). The analysis centers on several questions:

• Post-sale development dependence: Does the creator team continue building features, utility, or ecosystem value after the initial sale?
• Centralized control: Does the team control the roadmap, treasury, smart contracts, metadata hosting, or marketplace infrastructure?
• Platform dependence: Are NFTs confined to a proprietary ecosystem (as with NBA Top Shot on Flow), or can they be freely transferred across open protocols?

A profile picture (PFP) project where the founding team builds a metaverse, negotiates brand partnerships, and manages a community treasury clearly satisfies this prong. By contrast, a standalone digital artwork sold by an independent artist — with no roadmap, no team, and no ongoing development — presents a much weaker case. This distinction is the crux of the collectible-versus-security boundary.

The Shifting Enforcement Landscape Under Chairman Atkins

The SEC’s posture toward NFT enforcement has evolved under Chairman Paul Atkins, who took office in April 2025. The Commission’s Crypto Task Force, established in January 2025, has signaled a preference for rulemaking over regulation-by-enforcement.

Several developments are relevant:

• The Commission has dismissed or declined to pursue multiple crypto-related enforcement actions initiated under the prior leadership
• Staff statements have suggested interest in providing clearer frameworks for distinguishing collectibles from securities
• The Commission has solicited public input on how existing securities frameworks should apply to various digital asset categories, including NFTs

However, a softer enforcement posture does not change the underlying law. The Howey test is binding Supreme Court precedent. The settled actions against Impact Theory and Stoner Cats, and the motion-to-dismiss ruling in Dapper Labs, establish factual patterns that private litigants — not just the SEC — can invoke. Class action plaintiffs’ attorneys remain active in this space, and projects that satisfy the Howey test remain exposed to private securities fraud claims under Section 12(a)(1) of the Securities Act (15 U.S.C. § 77l(a)(1)) regardless of the SEC’s enforcement appetite.

What About Fractional NFTs and NFT-Fi?

Fractionalized NFTs — where a single NFT is divided into fungible tokens representing proportional ownership — present the highest securities risk in the NFT ecosystem. Fractionalization transforms a unique collectible into a pooled investment vehicle with tradable units, strongly satisfying all four Howey prongs. The economic substance is functionally identical to shares in a fund holding a single asset.

Similarly, NFT lending protocols, NFT index funds, and platforms that pool NFT assets for yield generation raise significant investment contract concerns. Any arrangement where purchasers deposit NFTs or funds into a pool and receive returns based on the pool operator’s management activities closely mirrors the investment contract archetype Howey was designed to capture.

Practical Implications and What to Do Now

For NFT Creators and Projects

1. Conduct a Howey audit. Map every feature of your project — tokenomics, marketing, roadmap, treasury, smart contract control — against each of the four prongs. Document this analysis contemporaneously.
2. Audit all public-facing materials. Remove or revise language emphasizing investment returns, price appreciation, or financial upside. Review Discord announcements, Twitter/X posts, and promotional videos — not just your website.
3. Deliver utility at mint. The more complete the NFT’s functionality at point of sale, the weaker the “expectation of profits” and “efforts of others” prongs become.
4. Reframe roadmaps carefully. Detailed, multi-phase roadmaps with promises of future value creation are among the strongest securities indicators. If you publish a roadmap, avoid language that ties future value appreciation to team deliverables.
5. Consider registration or exemptions. If your project likely satisfies Howey, explore compliance pathways: Regulation D (17 C.F.R. §§ 230.501-508) for accredited investors, Regulation A+ (17 C.F.R. §§ 230.251-263) for broader offerings, or Regulation Crowdfunding (17 C.F.R. §§ 227.100-503).

For NFT Marketplaces and Platforms

• Assess whether listed NFTs may constitute securities — if so, operating the marketplace may require broker-dealer registration under Section 15 of the Exchange Act (15 U.S.C. § 78o) or registration as an alternative trading system (ATS) under Regulation ATS (17 C.F.R. §§ 242.300-303)
• Implement listing standards that screen for high-risk securities indicators — particularly projects with investment-oriented marketing, revenue-sharing, or fractionalization features
• Be aware that private plaintiff class actions, not just SEC enforcement, can target platforms that facilitate sales of unregistered securities

For Collectors and Investors

• Understand that NFTs marketed as investment opportunities may carry different legal and tax implications than those purchased as digital art or collectibles
• Note the tax distinction: NFTs classified as “collectibles” under IRC § 1(h)(5)(A) are subject to a maximum 28% long-term capital gains rate — higher than the standard 20% rate for other capital assets. Whether a particular NFT is a “collectible” for tax purposes is a separate analysis from securities classification under Howey
• Monitor SEC Crypto Task Force guidance for forthcoming frameworks that may clarify classification standards

Conclusion

NFT securities classification ultimately turns on a fact-specific application of the Howey test. There is no blanket exemption for digital collectibles, nor a blanket presumption that all NFTs are securities. The enforcement actions against Impact Theory and Stoner Cats, combined with the judicial analysis in Friel v. Dapper Labs, have established clear patterns: NFTs sold with promises of profit derived from the creators’ ongoing efforts will be treated as investment contracts subject to federal securities registration requirements under the Securities Act of 1933.

As the SEC’s enforcement priorities evolve under Chairman Atkins, the fundamental legal framework — Supreme Court precedent — remains unchanged. And importantly, private securities litigation continues regardless of SEC enforcement appetite. Creators, platforms, and collectors who understand the Howey test and structure their activities accordingly are best positioned to navigate the NFT securities landscape compliantly.

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This article is for informational and educational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship. Laws and regulations in the cryptocurrency space change rapidly — consult a qualified attorney for advice specific to your situation and jurisdiction. Seth Goettelman is licensed to practice law in Wisconsin and Florida.