SEC Clarifies Token Buyback Rules for Functional Crypto Systems

The Securities and Exchange Commission's corporate-finance staff has clarified how token buybacks on functional crypto systems fit into the Howey analysis.

According to an updated FAQ, buyback announcements for tokens on functioning networks generally do not represent promises of essential managerial efforts.

This guidance draws a distinction between functional and non-functional systems. In cases where the network has not yet become operational, an issuer's buyback announcement could be seen as promising managerial efforts if it presents the program as creating yield or returns for token holders.

The staff also stated that maintaining, upgrading, or expanding a functional crypto system would not satisfy the Howey test, unless it involves creating profits for token holders.