SEC crypto FAQ addresses token buybacks, network upgrades and promises of profit

The U.S. Securities and Exchange Commission said Friday that token buybacks, network upgrades and marketing claims don't automatically turn a crypto asset into a security.

In an updated Frequently Asked Questions release, the Division of Corporation Finance said that announcing a buyback program for an already functioning crypto network would not, by itself, make the associated token subject to an investment contract. However, this would not necessarily apply to a network that is not yet functional where the issuers are pitching the buyback as a source of returns for its holders.

It also addressed questions on crypto projects that keep developing after launch.

"Once a crypto system is functional, services to secure, maintain, improve, or enhance such a system or its functionality, or to facilitate network effects," would not count as the kind of managerial effort under the Howey test, the FAQ stated.

Marketing a network's existing uses also generally would not create that expectation either, nor would statements about future features, so long as they don't promote the potential for profit.

The update reiterated that the answer will still heavily depend on the specifics of each case.

The FAQ builds on the SEC's March "Interpretive Release" of how securities laws apply to crypto assets. It comes just weeks after the Clarity Act failed to advance in the Senate, leaving regulators to continue working under its existing laws.

Separately, the CFTC updated its own crypto FAQ on Thursday. The newest updates say futures firms and clearinghouses are allowed to invest customer funds in tokenized versions of previously permitted assets, as long as they meet investment and custody requirements.

CFTC staff also said regulated firms can use blockchains for their recordkeeping, but they must be able to produce the records even in the event that a blockchain or its block explorer is not functioning.