SEC's Division of Corporation Finance Revises FAQs on Crypto Assets

SEC updates FAQ stating that buybacks without a central party do not constitute investment contracts.

The SEC's Division of Corporation Finance has revised its FAQs on crypto assets, adding that if a token buyback arrangement lacks a central party, it generally does not constitute an investment contract. This revision follows criticism from a16z's General Counsel and Head of Policy, Miles Jennings, who argued that the original wording could allow issuers to announce buybacks without creating an investment contract merely by making the announcement.

The first version of the FAQ, released on September 25, contains nine points. Point 2.5 states that when a crypto system is operational, an issuer's announcement of a non-security crypto asset buyback does not constitute a commitment to engage in "necessary managerial efforts"; however, if the system is not operational and the buyback is framed as generating returns for holders, the announcement itself may constitute such a commitment. The purposes of buybacks are listed as treasury management, supply reduction, protocol-funded destruction, and rebalancing. Point 2.4 states that once a functional system has no central party, an issuer's subsequent statements about that system generally will not create a new investment contract, as no one can control its success or failure.

At the same time, adjacent boundaries have been delineated. After a system is operational, security, maintenance, upgrades, enhanced functionality, or promoting network effects generally do not count as necessary managerial efforts under the Howey test; promoting existing uses or future functionalities not tied to profits typically does not create profit expectations on its own. Staking receipts for tokens that are non-investment contracts are considered digital tools, while receipts issued through protocol-based liquid staking may themselves be treated as digital goods. A trading platform does not automatically become an issuer merely by listing a token; it must fall under the definition of an issuer in SEC Rule 405. If another entity takes over the issuer's original commitments, the original investment contract obligations remain in effect.

The document clarifies its validity: these are the views of the Division of Corporation Finance staff, and they have no legal force without approval or disapproval from the Commission. The timing coincides with the Senate's stalled progress on the CLARITY Act, representing a continuation of a two-year clarification effort rather than a legislative exemption. Commissioner Hester Peirce publicly stated that the FAQ does not apply when a central party exists; Jennings disagrees with this interpretation, arguing that under this logic, startups could tokenize any revenue stream and sell it to the public to circumvent securities laws, which he calls "potentially the biggest loophole" that would be difficult to uphold in court or under the next administration. Lawyers Scott Johnsson and Gabriel Shapiro warn that this could lead to adverse selection.

Industry players have already initiated buybacks ahead of the FAQ; Uniswap began its UNI buyback last year, and Arca's Chief Investment Officer Jeff Dorman stated that the guidance helps end the wasteland of inflationary public chains. Lawyer Gabriel Shapiro interprets the clarification on buybacks in functional networks as more like "optional participation" under securities law. Teams like Ethena proposed buyback plans at the end of August but are still awaiting a written answer on whether the announcement itself would classify tokens as securities.

Mechanically, this represents a regulatory text-driven reconstruction of token economics, rather than mere spot trading. Buyers are looking to conduct buybacks, destruction, and treasury rebalancing in the U.S. while fearing being named under the Howey test; sellers are the SEC using non-binding FAQs to redefine industry behavior boundaries. Funds are shifting from on-chain buybacks that are not publicly disclosed to treasury operations that can be covered by legal memos. Beneficiaries are tokens that have become decentralized and operational; pressured parties are projects that have not launched but use buybacks as yield stories, as well as entities that tokenize revenue rights while still executing buybacks through corporate treasuries. Whether there is a central party or not becomes the watershed for whether buybacks can be framed as commodity mechanisms rather than securities commitments.

Supplementary data: The FAQ also covers staking, upgrades, and marketing commitments, with the buyback response being just one item. The CFTC concurrently stated that as long as it can be reliably retrieved on demand, it allows legal records to be placed on-chain. Bitcoin was trading around $84,000 at the time, and the clarification on buybacks coincided with the price of risk assets, but the document itself does not point to any single token.

Source: Public Information