The Division of Corporation Finance at the SEC released new FAQs clarifying the application of federal securities laws to digital assets. This guidance expands on the Commission's previous interpretation from March. It is important to note that these clarifications do not carry the force of law and have not been formally approved by the Commission.
Regarding token buybacks, the staff stated that if a crypto network is already functional, buybacks of non-security assets do not necessarily constitute essential managerial efforts under the Howey test. However, if a network is not yet functional, such buybacks could be viewed as part of an investment contract if they are marketed as a source of yield or returns for holders.
The guidance also covers liquid staking, noting that staking receipt tokens for digital commodities can be classified as digital tools. In some instances, these tokens may be treated as digital commodities if their value depends on market supply and demand within a functional system. Developers may continue to maintain and improve functional networks without triggering the Howey test.
Finally, the SEC clarified that promoting a network's current utility or discussing future features does not automatically imply a promise of managerial efforts, provided these statements do not focus on potential profits. Additionally, operating a secondary market for crypto assets does not automatically designate a platform as a promoter under Securities Act Rule 405.
