New U.S. SEC Crypto FAQs Bring Clarity to Staking, Token Buybacks and Blockchain Networks

The U.S. Securities and Exchange Commission is offering the crypto industry a more detailed map of where certain digital-asset activities may sit outside federal securities laws.

SEC staff in the Division of Corporation Finance published a new set of frequently asked questions addressing crypto assets, functional blockchain networks, staking receipt tokens, token buybacks, network development and secondary-market activity.

The guidance is significant because the central question for crypto businesses is often not simply whether a token itself is a security, but whether the way it is offered, marketed or used creates an investment contract.

The SEC’s framework continues to draw on the Howey test, which considers factors including an investment of money, a common enterprise, an expectation of profits and profits derived from the essential managerial efforts of others.

One of the clearest areas addressed by the new FAQs is functionality. SEC staff says that once a crypto system is functional, activities designed to secure, maintain, improve or enhance the network.

Including funding development projects and facilitating network effects, would generally not constitute the essential managerial efforts relevant to the Howey analysis.