The SEC Division of Corporation Finance has published new FAQ guidance that upends long-held assumptions across the crypto industry. The document states that token repurchase or buyback programs on fully functional networks do not automatically make tokens investment contracts or securities.
The release of the FAQ complements the SEC’s interpretive document from last March. The regulator’s move also aligns with the proposed Regulation Crypto Assets, which was previously designed specifically to facilitate token sales without requiring a full registration process.
However, this regulatory relief comes with one clear boundary.
An Active Network Is an Absolute Requirement
The U.S. Supreme Court’s Howey Test standard serves as the primary benchmark for assessing securities. SEC staff concluded that buyback announcements on an already active system do not satisfy the criteria of ‘essential managerial efforts’ from the token issuer.
The operational functionality of the network stands as an absolute requirement for crypto projects seeking to rely on this legal pathway. If a network is not yet live, announcing a buyback program that promises returns still carries the risk of violating securities laws.
The regulator’s stance on project development promises has also softened. SEC staff emphasized that developer pledges to maintain, upgrade, or enhance an already active network do not necessarily meet Howey Test criteria. A similar carve-out applies to general aspirational statements that do not promise profits to purchasers.
A Loophole to Prop Up Prices Without Sharing Rights
The SEC’s relaxed interpretation drew sharp reactions from legal practitioners. MetaLeX Labs corporate securities attorney Gabriel Shapiro argued that the FAQ guidance opens a massive loophole, making securities regulations feel optional for crypto developers.
Under this new document, developers gain legal leeway to prop up their token prices on secondary markets via buyback mechanisms. Developers are free to execute price-supporting maneuvers without any obligation to grant ownership rights to token purchasers, starkly contrasting with a corporation’s obligations to public shareholders.
For retail investors, the guidance clarifies the nature of the assets they are buying. Projects are free to control prices through buybacks, yet coin holders receive no ownership stakes akin to official shareholders. Reported by Decrypt.
Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
