Key facts
- SEC staff guidance suggests token buybacks on functional crypto networks do not qualify as promises of "essential managerial efforts" under the Howey test.
- For crypto networks not yet functional, buyback announcements pitched as generating yield or returns could still trigger securities laws.
- The SEC staff guidance carries no legal force and could be reversed by a future SEC.
The U.S. Securities and Exchange Commission's (SEC) Division of Corporation Finance has provided new guidance suggesting that token buyback announcements on functional cryptocurrency networks do not necessarily classify those tokens as securities. This is because, according to the staff, such announcements do not constitute promises of "essential managerial efforts," a key component of the Howey test used to determine if an asset is an investment contract and thus a security.
However, the guidance clarifies that for networks that are not yet functional, announcing a buyback program could still fall under securities laws if the issuer pitches it as a way to generate yield or returns for token holders. The staff also indicated that after a network becomes functional, promises to maintain, upgrade, or grow it, or vague aspirational statements not touting profit, would likely not satisfy the Howey test.
Securities attorney Gabriel Shapiro noted that the buyback section "goes further than I expected" and that securities laws are starting to look opt-in as the SEC applies them to crypto. The guidance is seen as a filter rather than a blanket pass, with functional networks that engage in buybacks being fine, while promising returns before a product is shipped could still expose issuers to securities laws.
Several protocols with active buyback programs, including HYPE, PUMP, ENA, AAVE, and LDO, are expected to benefit from this clarification. Pump.fun has burned $451 million, representing about 16.6% of its supply, and Pons sends roughly 80% of its V1 revenue to buybacks, with Ethena's holders voting to route 95% of net revenue to ENA buybacks. This guidance appears to endorse the industry's convergence on tokens as claims on protocol cash flow rather than bets on future development.