SEC Staff Clear Token Buybacks on Working Networks, With a Warning for Unfinished Ones

More crypto projects are using revenue to buy back their own tokens, the way public companies repurchase stock. Ethena proposed a buyback program in late August. What those teams lacked was a clear answer on whether announcing one could make their token look like a security.

The SEC’s Division of Corporation Finance gave one on Friday. Where a crypto system is functional, the staff wrote in the FAQs, “an issuer’s announcement of a non-security crypto asset buyback program would not constitute a representation or promise to undertake essential managerial efforts.” That kind of promise is what can turn a token sale into an investment contract under the Howey test.

The answer has a limit. On a network that isn’t yet functional, the staff warned, the same announcement could cross the line “if the issuer presents the buyback as creating yield or return for token holders.”

The FAQs build on the interpretation the SEC issued on March 17, which the CFTC joined and which sorted crypto assets into categories including digital commodities and digital tools. SEC Chair Paul Atkins said at the time that it acknowledged “most crypto assets are not themselves securities.”

Staking receipt tokens, which users get for depositing assets with a liquid staking provider, are digital tools when they are receipts for a digital commodity that is not itself subject to an investment contract, the staff said. They may count as digital commodities themselves if the token comes from a protocol-based liquid staking provider.

Once a network is functional, work to secure, maintain or improve it, including funding development projects, is not the managerial effort that makes a token a security, the staff added. The SEC floated that view in its proposed Regulation Crypto Assets in August.

Not every answer loosens the rules. If another party takes over an issuer’s promises, the token stays subject to the original investment contract. A trading platform that lists a token counts as its promoter only if it fits Rule 405’s definition of a promoter under the Securities Act.

The FAQs are staff views, not a Commission rule, and “have no legal force or effect,” the division said in the document.

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