SEC Staff Narrow Token Buyback Guidance to Networks With ‘No Central Party’

SEC staff tightened their new guidance on crypto token buybacks on Monday, three days after first publishing it, limiting its reach to networks that are both functional and have “no central party.”

The Division of Corporation Finance revised its crypto FAQ on Sept. 28, adding the words “and has no central party” to its answer on buybacks. As updated, staff wrote in the document that where a system meets both conditions, “an issuer’s announcement of a non-security crypto asset buyback program would not constitute a representation or promise to undertake essential managerial efforts.” Such a promise is one way a token sale can become an investment contract, and so a security, under the Howey test.

The rest of the answer is unchanged. On a network that is not yet functional, staff still say a buyback announcement could count as such a promise “if the issuer presents the buyback as creating yield or return for token holders.”

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When the division first published the FAQs on Friday, Sept. 25, the buyback answer required only that the crypto system be functional. The SEC posted a comparison with the prior version alongside the change.

The buyback answer does not define a central party. A neighboring answer in the same FAQ explains why the concept matters: once a functional system has no central party, issuer statements likely would not create a new investment contract, because no one “has control of the functional crypto system that would allow them to take any action which would affect the failure or success of the crypto system.”

Miles Jennings, general counsel and head of policy at a16z crypto, had raised concerns about the original wording. Journalist Eleanor Terrett, who reported the update on X, noted Jennings had said last week that the earlier text could “empower an issuer to announce the buyback program without that announcement then creating an investment contract.”

On Monday, Jennings praised the revision. “The narrowing of Friday’s guidance will bolster its durability, while guarding against attempts to misconstrue it by those that wish to circumvent securities laws,” he wrote in a post on X. “Pragmatic and clear rules are all crypto needs to succeed, and the SEC just delivered again.”

More crypto projects are using revenue to repurchase their own tokens. Ethena proposed a buyback program in late August.

The FAQs build on the interpretive release the SEC issued on March 17. They reflect staff views, not a Commission rule, and “have no legal force or effect,” the division said.

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