---
type: claim
domain: internet-finance
description: "Counterintuitively, removing governance rights from ownership tokens may strengthen the securities classification argument because passive investors relying entirely on the issuer's efforts is exactly what Howey tests for."
confidence: speculative
source: "Structural analysis of SOAR DRP and Street FDN ERC-S models vs MetaDAO futarchy and Seedplex equity — applied Howey prong analysis"
created: 2026-03-09
---

# Governance-free ownership tokens may be more securities-like than governance tokens because stripping decision rights concentrates the efforts of others prong that Howey requires

SOAR and Street FDN strip governance to reduce complexity for token holders. But this creates a regulatory paradox: the less control token holders have, the more the instrument looks like a security under the Howey test.

The Howey test's third prong asks whether profits come predominantly from the efforts of others. When token holders have NO governance rights — no voting, no proposals, no ability to direct company operations — they are purely passive investors relying entirely on the issuer's efforts. This is textbook securities territory.

**Important caveat on SOAR:** SOAR's DRP standard structures tokens as senior debt instruments, not equity or governance tokens. This may take SOAR outside the Howey framework entirely — debt instruments are analyzed under the Reves "family resemblance" test, which asks whether the instrument resembles common debt types (notes, bonds) rather than whether it constitutes an "investment contract." If SOAR's DRP qualifies as a note under Reves, the Howey analysis in this claim does not apply to it. The governance-free securities argument would then apply primarily to Street FDN's ERC-S model, which provides economic exposure without a debt structure.

Contrast with futarchy-governed tokens (MetaDAO): token holders actively participate in governance through conditional markets. Their trading activity directly influences corporate decisions. This creates a structural argument that profits do NOT come predominantly from others' efforts — they come partly from the collective market activity of token holders themselves. However, participation levels matter: if governance trading is thin (as current evidence suggests), the "active participation" defense weakens considerably.

The spectrum of Howey exposure:

| Model | Holder Activity | "Efforts of Others" Strength |
|-------|----------------|------------------------------|
| SOAR (DRP) | None — hold and receive | Strong — purely passive (but may exit Howey via Reves debt test) |
| Street FDN (ERC-S) | None — economic exposure only | Strong — purely passive |
| Seedplex (equity) | Traditional shareholder rights | Moderate — can vote but rarely do |
| MetaDAO (futarchy) | Active market participation | Weakest — holders shape decisions through trading |

This suggests MetaDAO's governance complexity, which SOAR and Street FDN strip as "overhead," may actually be its regulatory moat. The very mechanism that makes futarchy harder to explain to investors also makes it harder for the SEC to classify as a security.

**Open question:** Does this analysis hold if futarchy participation is low? If only 33 traders participate in governance decisions (as in the Ranger liquidation), the "active participation" argument weakens. The defense requires meaningful, widespread governance activity — not just the theoretical possibility of participation.

## Challenges

This claim is speculative because:
1. No court has ruled on futarchy-governed tokens vs governance-free tokens
2. The SEC's approach to token governance is still evolving
3. The "efforts of others" prong has been interpreted broadly — even some governance activity may not be enough to escape securities classification
4. Seedplex openly operates in securities territory and seems fine with it

---

Relevant Notes:
- [[futarchy-governed entities are structurally not securities because prediction market participation replaces the concentrated promoter effort that the Howey test requires]] — this claim's existing argument is strengthened by the competitive comparison
- [[Living Capital vehicles likely fail the Howey test for securities classification because the structural separation of capital raise from investment decision eliminates the efforts of others prong]] — parallel structural separation argument
- [[the DAO Reports rejection of voting as active management is the central legal hurdle for futarchy because prediction market trading must prove fundamentally more meaningful than token voting]] — the "more meaningful" question is exactly what this competitive landscape tests
- [[Ooki DAO proved that DAOs without legal wrappers face general partnership liability making entity structure a prerequisite for any futarchy-governed vehicle]] — Street FDN's SPV/Foundation/DAO wrapping addresses this directly
- [[MetaDAOs futarchy implementation shows limited trading volume in uncontested decisions]] — low participation undermines the "active governance" defense against securities classification

Topics:
- [[internet finance and decision markets]]