SEC Clarifies Token Buybacks on Functional Crypto Networks
- The SEC’s Division of Corporation Finance stated that token buyback announcements on functional crypto networks do not constitute “essential managerial efforts” under the Howey test.
- For non-functional networks, promoting buybacks as a source of yield or returns could still trigger securities laws.
- Attorney Gabriel Shapiro described the guidance as a “loophole,” emphasizing it is staff guidance without legal force and could be reversed by future SEC decisions.
- The FAQs build on the SEC’s March interpretive release and its Regulation Crypto Assets proposal, which allows token sales without full registration.
The SEC’s recent guidance clarifies that once a token network is functional, announcing a buyback program does not imply essential managerial efforts, thus avoiding classification as a security under the Howey test. However, for networks still in development, pitching buybacks for yields may still fall under securities regulations.
This clarification provides crypto projects with more flexibility in managing their tokens while highlighting potential regulatory challenges for non-functional networks seeking to offer returns through buybacks. (Source)
