SEC Gives Green Light to Token Buybacks on Functional Crypto Networks

The SEC's Division of Corporation Finance has released new guidance on token buybacks in cryptocurrency networks. According to the agency, announcing a token buyback program does not amount to a promise of 'essential managerial efforts' once a network is functional. This is key to determining whether something is an investment contract and therefore a security under the Howey test.

However, for networks that are not yet functional, pitching buybacks as a source of yield or returns could still trigger securities laws. The guidance also notes that promises to maintain, upgrade, or grow a network would not satisfy the Howey test after it is functional.

Gabriel Shapiro, a corporate securities attorney at MetaLeX Labs and former general counsel at Delphi Labs, said the guidance goes 'a long way' in favor of crypto projects. He noted that teams can now build, prop up prices with buybacks, and enjoy the benefits of a public investment without giving holders shareholder-style rights.

The FAQs are staff guidance and carry no legal force, but they follow the SEC's March interpretive release and its Regulation Crypto Assets proposal. The agency has been trying to clarify its stance on tokenized equity and securities laws in recent months.