SEC Clarifies Routine Crypto Upgrades Don't Meet Howey Test Requirements

The US Securities and Exchange Commission (SEC) has clarified its stance on the Howey test for crypto network upgrades. In a recent FAQ published by the Division of Corporation Finance, staff members stated that routine maintenance, security work, and upgrades to functional crypto networks generally do not meet the key managerial-efforts requirement under the Howey test.

The guidance applies to services that improve network functions, strengthen security, or promote network effects. It also includes funding or sponsoring development projects among activities that typically do not qualify as essential managerial efforts described in the Howey test once a crypto system is functional.

Regarding staking receipt tokens, the FAQ notes that a token recording ownership of an underlying digital commodity without changing rights, obligations, or returns may be treated as a digital tool. A receipt token issued by a protocol-based liquid-staking provider may instead qualify as a digital commodity.

The staff guidance also states that buyback programs for non-security crypto assets on functional networks generally do not constitute key managerial efforts. However, this treatment may change when a network is not yet functional and buybacks are promoted as a way to generate returns for holders.