Abstract: As the regulatory stance of various sovereign countries on cryptocurrencies has shifted from a conservative one to an open one, and in the context of developing the New Quality Productivity, enhancing digital financial services capabilities, and cultivating a stablecoin-friendly policy environment in Hong Kong, it is time for China to introspect on its regulatory stance on initial coin offerings (ICO). ln this regard, it is advisable for China to follow international consensus and bring ICOs under securities regulation through the localized application of the Howey Test. To eliminate uncertainties in applying the Howey Test to ICOs, a broad recognition model capturing value exchange should be adopted in the investment of money test; either horizontal commonality or broad vertical commonality standards should be implemented in the common enterprise test; the intent based mining approach should be used in the expectation of profits test to determine the economic substance behind transactions; and timing considerations for investors and behavioral considerations for sponsors should be applied respectively in others tests. Based on this framework, the key criterion for evaluating payment token models is the actual degree of project decentralization; the focus of utility token models is on the true nature of the goods or services referenced by the tokens; the essential factor of security token models is to incorporate all rights increments into the expectation of profits: and the determining standard of future token models depends on distinguishing between transactional efforts and operational efforts by the issuer. Depending on the Howey Test outcomes, securities regulation should be strengthened for "security-like" tokens, while public law supervision should be enhanced for “virtual commodity-like” tokens.
Key Words: initial coin offering; Howey test; virtual tokens; blockchain; securities law; stablecoin
Author: Tang Linyao, associate research fellow, CASS Institute of Law;
Source: 6 (2025) Science of Law (Journal of Northwest University of Political Science and Law).
