SEC Says Liquid Staking, Token Buybacks Generally Aren’t Securities

The U.S. Securities and Exchange Commission said major crypto activities, including liquid staking tokens, token buybacks and network maintenance, generally do not fall under securities laws.

According to interpretive guidance released on September 25 by the SEC’s Division of Corporation Finance, token buybacks on a functioning crypto network do not constitute an issuer’s essential managerial efforts under the Howey test, which is used to determine whether an asset is a security.

In other words, a buyback alone does not necessarily create an expectation that holders will profit from the issuer’s managerial efforts. By contrast, if the developers of an unfinished network conduct a buyback while promoting future price gains or investment returns, the token could be classified as an investment-contract security.

The agency also said tokens issued through liquid staking are, in principle, not securities but digital goods or tools. If a staking token merely serves as a receipt representing rights to the underlying crypto asset, or if its value is determined by the protocol and market supply and demand, it would not be viewed as an investment contract.

The SEC also excluded post-launch activities such as security management, performance improvements, system upgrades and development support from the essential managerial efforts used to determine whether a token is a security. A token should not be deemed a security simply because a development team continues to provide technical support and system improvements.

Marketing that highlights a token’s actual functions and use cases, rather than potential investment returns, also generally does not satisfy the requirements for an investment contract, the agency said. It drew a distinction between explaining how a token is used on a network and encouraging buyers to expect price appreciation.