SEC Clears Path for Liquid Staking Tokens, Token Buybacks as Securities

The U.S. Securities and Exchange Commission (SEC) has issued new guidance stating that certain cryptocurrency activities, including liquid staking tokens and token buybacks, are generally not subject to securities laws.

In a recent interpretive guidance released by the SEC's Division of Corporation Finance on September 25, it was clarified that token buybacks conducted on a functioning network do not constitute an issuer's essential managerial efforts under the Howey test.

This means that simply buying back tokens does not necessarily create an expectation that holders will profit from the issuer's managerial efforts. However, if developers of an unfinished network conduct a buyback while promoting future price gains or investment returns, the token could be classified as an investment-contract security.

The SEC also stated that tokens issued through liquid staking are considered digital goods or tools rather than securities. If a staking token serves as a receipt representing rights to the underlying cryptocurrency asset, or if its value is determined by the protocol and market supply and demand, it would not be viewed as an investment contract.

Additionally, post-launch activities such as security management, performance improvements, system upgrades, and development support do not constitute essential managerial efforts. Marketing that highlights a token's actual functions and use cases, rather than potential investment returns, also generally does not satisfy the requirements for an investment contract.