SEC Staff Issues New Guidance on Crypto Token Buybacks and Liquid Staking

SEC staff clarifies rules for crypto buybacks

Staff from the U.S. Securities and Exchange Commission (SEC) issued new guidance on September 25 regarding token buybacks and liquid staking. The guidance clarifies that announcing buybacks for non-security tokens on a functional crypto system does not necessarily count as a promise of essential managerial efforts.

This distinction is important because managerial effort is a key part of the Howey test. This test is used to determine if a transaction is an investment contract, which would make it a security subject to federal regulations.

A crypto system is considered functional when its native token can be used for its intended purpose. If a system is not yet functional, the SEC staff noted that a buyback announcement could be seen as a promise of managerial effort if it is presented as a way to create returns for holders.

Important details from the new FAQs

• The guidance comes from the SEC Division of Corporation Finance and is nonbinding.
• Announcing buybacks on functional systems generally does not constitute a promise of essential managerial efforts.
• Funding or sponsoring development projects to improve a functional system is not considered essential managerial work.
• Liquid staking receipts may be classified as non-securities if they represent ownership of a digital commodity.

New classification for liquid staking receipts

The FAQs explain that a staking receipt token can be viewed as a digital tool rather than a security. This applies when the receipt evidences ownership of a deposited asset instead of creating extra financial benefits. Liquid staking is a process where users deposit crypto to support a network and receive a token in return that represents their stake.

For these receipts to be considered non-securities, the issuer cannot use, lend, or pledge the deposited assets. Additionally, the issuer should act as an agent and cannot guarantee specific rewards to the depositors. The underlying asset remains the most important factor; if the original asset is a security, the receipt is also treated as a security.

The legal standing of these staff views

These new answers are the views of the SEC staff and are not official Commission rules. The document explicitly states that these views have no legal force or effect. The SEC Commission has not approved or disapproved of this guidance.

The staff also clarified that promoting the current capabilities of a system does not usually count as a promise of managerial effort. Aspirational statements about future utility are treated similarly as long as they do not mention potential profits.

Why this matters for crypto protocols

This guidance provides more clarity for developers and organizations managing crypto networks. It suggests that maintaining, securing, or improving an already functional system does not automatically make the associated tokens securities. This helps projects understand how to fund development and manage token supplies without necessarily triggering investment contract rules.

Sources

• The Defiant