‘Biggest loophole ever?’ a16z challenges SEC crypto buyback FAQ

The SEC offered much-needed regulatory clarity on crypto token buybacks on the 25th of September. However, crypto venture firm a16z has flagged it as a ‘loophole’ that can be negatively leveraged by the next administration against the industry. 

And yet, not every industry leader agrees with a16z’s interpretation, even the SEC itself. 

Why SEC’s stance on crypto buybacks is crucial

As part of continued regulatory guidance for the sector after the CLARITY Act stalled, the SEC released FAQs and its interpretations. On crypto token buybacks, the agency clarified, 

Where a crypto system is functional, an issuer’s announcement of a non-security crypto asset buyback program would not constitute a representation or promise to undertake essential managerial efforts.

In other words, it will not trigger a securities law violation if there is no central party (fully decentralized). So, commodity tokens don’t become a security because of buybacks. 

However, if the crypto system isn’t functional and has a central party, such offerings will be viewed as a promise to use buybacks to create yield or returns for token holders. Put differently, it will constitute an ‘investment contract’ and need SEC registration.