The SEC's Division of Corporation Finance said in new FAQs published Friday that crypto projects buying back their own tokens don't trigger securities status, provided the underlying network is already functional.
The guidance addresses the Howey test, the Supreme Court standard used to determine whether an asset qualifies as an investment contract, and therefore a security. According to the FAQs, once a crypto system is functional, announcing a token buyback program doesn't constitute a promise of "essential managerial efforts," a core element of that test.
The analysis differs for networks that aren't yet functional. In those cases, staff said, a buyback announcement could cross into securities territory if the issuer markets it as generating yield or returns for token holders.
Additional guidance points
- After a network is functional, promises to maintain, upgrade or grow it wouldn't satisfy the Howey test.
- Promoting a system's current uses, or making vague aspirational statements that don't tout profit, likely wouldn't either.
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 that "the securities laws are starting to look opt-in now, at least as applied by the SEC to crypto." He said the buyback section "goes further than I expected."
