SEC Sheds Light on Token Buybacks and Liquid Staking

The US Securities and Exchange Commission (SEC) has published new FAQs on token buybacks and liquid staking, clarifying how they are treated under securities law.

In a key point, the SEC staff stated that buying back non-security tokens on a functional crypto system does not by itself promise essential managerial efforts, which is a crucial factor in determining whether a token is an investment contract under the Howey test. However, if the issuer pitches the buyback as yield for holders, the outcome may be different.

The FAQs also classify qualifying liquid staking receipts as non-securities, provided the issuer cannot lend, pledge or otherwise use the deposited asset. This means that staking receipts that only evidence ownership of the deposited asset and do not allow the issuer to transfer, lend or pledge it are considered digital commodities, rather than securities.