The SEC's Division of Corporation Finance issued new guidance Friday clarifying when token buyback programs trigger securities regulations under the Howey test, the Supreme Court standard for determining whether an asset qualifies as an investment contract.
According to the FAQs, once a crypto network becomes functional, announcing a token buyback program does not amount to a promise of essential managerial efforts—a key component of the Howey test. This provides crypto projects with clarity on structuring buyback programs without triggering securities classification.
The agency drew a distinction for non-functional networks. For systems not yet operational, promoting a buyback program as generating yield or returns for token holders could still cross into securities territory, the FAQs stated.
The guidance also addressed other promises regarding network development. After a network is functional, commitments to maintain, upgrade, or grow it would not satisfy the Howey test, according to the SEC staff. Promotions focused on a system's current uses or vague aspirational statements without profit implications would likely not qualify either.
Gabriel Shapiro, a corporate securities attorney at MetaLeX Labs, characterized the guidance as expansive, noting that it allows teams to continue building and use buybacks to support token prices while avoiding the shareholder-style rights that come with traditional securities. He described the ruling as enabling projects to obtain benefits of equity structures without corresponding regulatory burdens.
Shapiro emphasized that the FAQs carry no legal force and could be reversed by a future SEC administration or challenged by private litigation.
The guidance builds on the SEC's March interpretive release and its Regulation Crypto Assets proposal, which would permit projects to sell tokens without full registration. The clarification also follows the agency's new innovation exemption for tokenized stocks.
