SEC Staff Adds 'No Central Party' Condition to Token Buyback FAQ
Key Takeaways
- •The SEC Division of Corporation Finance amended Question 2.5 of its crypto FAQ on Sept. 28 to require that a token network have no central party, in addition to being functional, for the buyback guidance to apply.
- •The original Sept. 25 answer referred only to a system being functional, and the revision narrows it by adding the phrase 'and has no central party.'
- •The new condition aligns with the SEC's March interpretation, which defines a central party as a person, entity, or group holding operational, economic, or voting control of a crypto system.
- •Commissioner Hester Peirce publicly stated on Sept. 25 that issuers with a central party cannot rely on the FAQ, while a16z crypto's Miles Jennings, who had disputed that reading, welcomed the amendment as bolstering its durability.
- •The FAQ is a nonbinding staff view that does not change applicable law, and the amendment does not itself declare buybacks by centrally controlled projects to be securities transactions.
U.S. Securities and Exchange Commission staff has amended its crypto FAQ, restricting the guidance's assurance on token-buyback announcements to networks that are both functional and have no central party.
The revision, dated Sept. 28, comes from the Division of Corporation Finance, which reworked its answer to Question 2.5 of the frequently asked questions. Where both conditions hold, the revised answer states, an issuer's announcement of a buyback program for a non-security crypto asset "would not constitute a representation or promise to undertake essential managerial efforts."
That language addresses a single element of the investment-contract analysis used to determine when crypto asset transactions fall within federal securities law: the managerial efforts investors rely on for expected profits. It is not a blanket exemption for buybacks.
The edit narrows the original answer, issued Sept. 25 and covered by The Defiant, which referred only to a system being functional. A comparison with the prior version marks the addition of "and has no central party," and the FAQ dates the change to Sept. 28.
The added condition tracks the SEC's March interpretation, under which a central party is a person, entity or group with "operational, economic, or voting control of a crypto system." Issuers whose systems remain under that control cannot point to functionality alone to fit within the amended answer. The edit does not itself declare their buybacks to be securities transactions.
The FAQs are nonbinding staff views, not a Commission rule. They carry no legal force or effect and do not change applicable law. Even so, they are the working reference issuers and their counsel consult when gauging the staff's current view of a token announcement.
A Limit Peirce Had Already Signaled
SEC Commissioner Hester Peirce had articulated the narrower reading before the text changed. In a Sept. 25 exchange on X, she wrote: "Maybe it wasn't clear, but if you have a central party, you can't rely on this FAQ."
Miles Jennings, a16z crypto's head of policy and general counsel, disagreed at the time, arguing that only Question 2.4 — not the buyback answer in Question 2.5 — expressly contained that limitation.
Jennings welcomed the amendment on Sept. 28, saying the narrowing would "bolster its durability, while guarding against attempts to misconstrue it by those that wish to circumvent securities laws."
The answer's warning for systems that are not functional remains intact: a buyback announcement could constitute a promise of essential managerial efforts if the issuer presents it as creating yield or returns for token holders. Read together, the two conditions leave issuers pointing to the FAQ needing to clear two factual gates: a functional network, and the absence of any person, entity or group holding operational, economic, or voting control of the system.
