The U.S. Securities and Exchange Commission has said that crypto token buybacks, network upgrades, and statements about a project's features do not, on their own, determine whether a digital asset is a security.

In updated guidance, the SEC's Division of Corporation Finance draws a line between routine activity on functioning blockchain networks and conduct that could lead purchasers to expect profits from the managerial efforts of a project team. The distinction is particularly relevant for projects weighing token repurchases, continued development after launch, or discussion of future network features. The document takes the form of staff responses to frequently asked questions, which represent the division's views rather than rules adopted by the Commission.

The agency's position does not amount to a blanket exemption for token projects. The circumstances surrounding each activity and the expectations created among purchasers remain central to the securities-law analysis. The classification carries practical weight, since offerings of securities generally must be registered with the SEC or qualify for an exemption from registration.

Buybacks and Ongoing Development

According to the division, announcing a token buyback on an already operating network does not, by itself, create an investment contract. The analysis can differ when a network remains unfinished and promoters describe a planned buyback as a potential mechanism for generating returns for token purchasers. In that situation, the purpose of the buyback and the representations surrounding it become relevant to the assessment.

The guidance similarly addresses projects that continue developing their networks after launch. Developers can carry out security work, maintain services, and introduce improvements without those activities automatically creating the type of managerial reliance examined under the Howey test. The test, which stems from the U.S. Supreme Court's 1946 decision in SEC v. W.J. Howey Co., asks whether a transaction involves an investment of money in a common enterprise coupled with a reasonable expectation of profits derived from the efforts of others — the standard for determining whether a transaction constitutes an investment contract, a category of security under federal securities laws. Efforts to promote continued use of a functioning network also do not necessarily establish such reliance.

The SEC's explanation acknowledges that operating blockchain networks can require ongoing maintenance and technical development, and that these activities do not automatically determine a token's legal status.

Marketing Still Turns on Purchaser Expectations

The division also distinguishes descriptions of existing network functionality from promotional statements that encourage purchasers to view future developments as profit opportunities. A project can generally describe how an operating network is used without necessarily causing purchasers to expect returns from the managerial efforts of its developers.

Projects may also discuss features they intend to introduce, provided those statements do not characterize the planned features as opportunities for profit. However, labeling an activity a "network upgrade" or a transaction a "buyback" does not settle the legal question. The SEC said the analysis remains dependent on factors including the condition of the network, the project's statements, and what purchasers reasonably expect.

The updated FAQ builds on the SEC's March interpretation concerning the application of federal securities laws to certain crypto assets and transactions, which provides the broader framework for the division's responses on token buybacks, continuing network development, and promotional claims.

CFTC Updates Guidance on Tokenized Assets

The SEC's update comes as U.S. regulators continue addressing digital asset questions through guidance and existing regulatory authorities. Separately, staff at the Commodity Futures Trading Commission, which oversees U.S. derivatives markets, updated guidance for regulated firms concerning customer funds and recordkeeping.

The CFTC's guidance covers the use of tokenized versions of permitted assets as well as blockchain technology for maintaining records. Firms using tokenized assets must continue to meet applicable investment and custody requirements. The guidance also addresses recordkeeping when blockchain networks are used, including situations in which a network or block explorer becomes unavailable.

For crypto projects, the SEC's latest guidance leaves the legal assessment tied to the circumstances surrounding each activity. A token buyback or network upgrade alone does not determine whether purchasers hold an expectation of profits from a project's managerial efforts.

Reporting: Marcus Renfield | Source: Hokanews