The SEC Division of Corporation Finance has updated its crypto FAQ, clarifying that token buybacks for functional networks do not necessarily constitute a promise of essential managerial efforts under the Howey test. This guidance suggests that maintaining, upgrading, or promoting a live network does not automatically classify a token as a security.
Legal experts, including Gabriel Shapiro of MetaLeX Labs, noted that the update provides significant regulatory clarity. The SEC now distinguishes between functional protocols and those that have not yet launched. If a network is not functional and an issuer promotes buybacks as a source of yield, it may still be subject to securities laws.
The new guidance effectively validates the industry trend of treating tokens as claims on protocol cash flow. Projects like Pump.fun, which has burned $451 million worth of tokens, and Ethena, which routes 95 percent of net revenue to ENA holders, operate under this model. Other protocols tracking buybacks include AAVE, LDO, NEAR, and PENDLE.
This regulatory shift allows projects with live products and revenue to conduct buyback programs with greater legal certainty. By moving away from the previous legal gray zone, the SEC has provided a framework for protocols to distribute value to token holders without automatically triggering securities registration requirements.
