SEC Clears Token Buybacks for Functional Crypto Networks

The US Securities and Exchange Commission (SEC) has clarified its stance on token buybacks for crypto networks, sparking significant changes in the industry.

In an update to its FAQs, the SEC's Division of Corporation Finance stated that announcing a token buyback does not constitute a promise of 'essential managerial efforts', a key aspect of the Howey test, which determines whether something is a security or not.

This means that protocols with functioning networks can now announce token buybacks without triggering securities laws. However, if a network isn't yet functional and promises returns to holders through buybacks, it could still be considered a security.

The guidance has been seen as a major win for the crypto industry, particularly for DeFi projects like Hyperliquid, PUMP, ENA, AAVE, SKY, LDO, PENDLE, AERO, RAY, JTO, NEAR, ETHFI, SYRUP, LIT, ASTER, KMNO, MET, CC, CARDS, PONS, and STONK.