SEC staff says token buybacks do not make functional crypto networks securities
The SEC's Division of Corporation Finance said buyback announcements on working crypto networks do not count as promises of essential managerial efforts under the Howey test.
Key points
- The SEC's Division of Corporation Finance published new FAQs on Friday covering token buybacks.
- For functional networks, announcing a buyback does not amount to a promise of essential managerial efforts under the Howey test.
- For networks that are not yet functional, pitching buybacks as a source of yield or returns could still trigger securities laws.
- Attorney Gabriel Shapiro called the guidance a loophole and noted it is staff guidance without legal force.
- The FAQs build on the SEC's March interpretive release and its Regulation Crypto Assets proposal.
Crypto projects that want to buy back their own tokens have received a green light from the SEC's staff, subject to one significant condition. In new FAQs published on Friday, the agency's Division of Corporation Finance said that once a crypto system is functional, announcing a token buyback programme does not amount to a promise of essential managerial efforts. That promise is a key ingredient of the Howey test, the Supreme Court standard used to decide whether something is an investment contract and therefore a security.
The position changes for networks that are not yet functional. In those cases, staff said, a buyback announcement could cross the line if the issuer presents it as a way of generating yield or returns for holders. The FAQs also addressed other promises made after a network becomes functional, saying commitments to maintain, upgrade or grow it would not satisfy Howey. Promoting a system's current uses, or making vague aspirational statements that do not tout profit, would likely fall outside the test as well.
Buybacks on working networks
Gabriel Shapiro, a corporate securities attorney at MetaLeX Labs and former general counsel at Delphi Labs, said the guidance goes a long way. Writing on X, he said the securities laws are starting to look opt-in, at least as applied by the SEC to crypto, and that the buyback section goes further than he expected. In his reading, teams can keep building, support prices with buybacks and enjoy many perks of a public investment without giving holders shareholder-style rights.
Shapiro argued that the guidance opens a loophole in a regulatory regime whose purpose was to prevent firms from drafting their way around economic reality. He said crypto's bigger trend is not tokenised equity but a drive to obtain all the benefits of equity with none of the burdens. He also stressed that the FAQs carry no legal force, meaning a private plaintiff or a future SEC could take a different view.
Limits before launch
The FAQs build on the SEC's March interpretive release and its Regulation Crypto Assets proposal, which would let projects sell tokens without full registration. They also follow the agency's new innovation exemption for tokenised stocks, unveiled after the Clarity Act failed in the Senate. SEC Chair Paul Atkins had signalled in July that the agency would step in if the bill faltered, and the CFTC issued a similar warning in August.
The crypto industry has largely embraced regulators as its path forward, though agency rules are easier to unwind than laws passed by Congress. That distinction matters because staff guidance can be reversed more easily than legislation, as Shapiro noted. For now, the FAQs give functional networks more room to announce buybacks without treating the move as a securities offering, while leaving open the question of how a future commission might read the same facts.