SEC · Supreme Court · Decrypt
SEC Staff Confirms Token Buybacks Don't Make Crypto a Security—If the Network Works
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Crypto projects looking to buy back their own tokens got a green light from the SEC's staff, with one big condition.
Key facts
- Gabriel Shapiro, a corporate securities attorney at MetaLeX Labs and former general counsel at Delphi Labs, said the guidance goes a long way
- The FAQs, which carry no legal force, build on the SEC's March interpretive release and its Regulation Crypto Assets proposal
- SEC Chair Paul Atkins had signaled in July that the agency would step in if the bill faltered, and the CFTC issued a similar warning in August
- That's a key ingredient of the Howey test, the Supreme Court standard for deciding whether something is an investment contract, and therefore a security
Summary
The SEC's Division of Corporation Finance said buyback announcements on functional crypto networks don't count as promises of "essential managerial efforts" under the Howey test. For networks that aren't yet functional, pitching buybacks as a source of yield or returns could still trigger securities laws. Attorney Gabriel Shapiro called the guidance a "loophole," but noted it's staff guidance without legal force that a future SEC could reverse. In new FAQs published Friday, the agency's Division of Corporation Finance said that once a crypto system is functional, announcing a token buyback program doesn't amount to a promise of "essential managerial efforts.