SEC staff says certain crypto buybacks and staking tokens fall outside securities laws

SEC staff issued new guidance Friday clarifying how token buybacks, staking receipt tokens and ongoing blockchain development may be treated under federal securities laws.

The FAQs, published by the SEC’s Division of Corporation Finance, build on the Commission’s March interpretation. The guidance does not carry the force of law and has not been approved or disapproved by the Commission.

One key clarification concerns token buybacks. Staff said that when a crypto network is already functional, announcing a buyback of a non-security crypto asset would not by itself amount to a promise to perform essential managerial efforts under the Howey test.

The analysis can differ when a network is not yet functional. In that case, a buyback could contribute to an investment contract if it is presented as generating yield or returns for token holders.

The FAQs also address liquid staking. A staking receipt token representing a digital commodity that is not subject to an investment contract can be treated as a “digital tool” because it serves as a receipt for the underlying asset.

In some cases, a staking receipt token issued by a protocol-based liquid staking provider may instead be classified as a digital commodity when its value is tied to the operation of a functional crypto system and market supply and demand.

SEC staff also said promoting a network’s current utility or capabilities would generally not, on its own, amount to a promise of essential managerial efforts. Aspirational statements about future features may also fall outside that analysis when they do not promote potential profits.

The guidance further says developers can continue maintaining, securing and improving a functional network without those activities necessarily constituting essential managerial efforts under Howey.

Staff also clarified that operating a secondary market for a crypto asset does not automatically make a trading platform a promoter. The platform would still have to meet the definition of a promoter under Securities Act Rule 405.