SEC Clears Path for Functional Crypto Networks

The US Securities and Exchange Commission (SEC) has issued nine FAQs on crypto assets, clarifying that token buybacks and network upgrades do not automatically make a cryptocurrency a security. The SEC's Division of Corporation Finance published the FAQs on September 25, building on the March interpretive release that named Bitcoin, Ether, Solana, and XRP as digital commodities.

The staff guidance states that a token buyback announcement on a functional network is not a promise of managerial effort, but it could be one on a non-functional network if pitched as yield or return. This means that even with a working network, the SEC may scrutinize the motivations behind a token buyback to determine whether it constitutes an investment contract.

The FAQs also address staking receipts and trading platforms, stating that a staking receipt token for a digital commodity is itself a digital tool, but can be considered a digital commodity when issued by a protocol-based liquid staking provider. Additionally, the SEC clarified that statements made by the issuer of a functional network with no central party do not create a new investment contract.