Following the failure of the CLARITY Act in the U.S. Senate on Sept. 15, the Securities and Exchange Commission (SEC) has published fresh staff guidance in a new set of FAQs addressing long-running questions surrounding token classification, staking receipts, token buybacks, and the Howey test.
Staking Receipt Tokens and Essential Managerial Efforts
The SEC guidance clarifies that staking receipt tokens—which evidence ownership of crypto assets deposited for staking—can be classified as a digital tool or digital commodity when issued by a protocol-based liquid staking provider, provided the underlying token is not subject to an investment contract. To maintain this status, the receipt must not transfer ownership or control to the issuer, nor permit the issuer to lend, pledge, rehypothecate, or otherwise utilize the deposited assets. This follows prior regulatory clarifications regarding staked tokens.
Furthermore, the regulator outlined that ongoing efforts to secure, maintain, improve, or enhance a functional blockchain network—including funding development or driving network effects—do not constitute essential managerial efforts under the Howey test. Once a functional cryptocurrency ecosystem operates without a central controlling entity, statements made by the original issuer are generally less likely to create a new investment contract for the native token.
Regulatory Stance on Token Buybacks and Network Promotion
Addressing issuer activities, the SEC stated that announcing a token buyback for a non-security token on a fully functional network does not amount to a promise of essential managerial efforts. However, if the blockchain network is not yet functional and the issuer markets the buyback as a mechanism to generate yields or financial returns for holders, the regulatory classification changes, potentially triggering securities laws.
Regarding marketing, the agency noted that promoting a network's existing capabilities or utility generally fails to establish an investment contract. Even aspirational statements regarding future technical features fall outside the Howey test threshold, provided they do not emphasize the prospect of financial profit for investors.
Key Takeaways
- Staking Receipts: Tokens evidencing staked deposits are not investment contracts if issuers do not obtain control or rehypothecation rights.
- Managerial Efforts: Routine network maintenance, development funding, and protocol enhancements do not meet the Howey test threshold for essential managerial efforts once a network is functional and decentralized.
- Token Buybacks: Buybacks on functional networks do not create securities contracts, whereas buybacks marketed as yield generators on pre-functional networks do.
- Marketing Boundaries: Promoting technical utility or future features does not trigger securities laws unless profits are promised.
Why It Matters
The SEC staff FAQs provide incremental regulatory clarity for decentralized finance protocols and token issuers struggling in the wake of stalled legislative efforts in Congress. By defining concrete boundaries around liquid staking rehypothecation, network maintenance, and buyback marketing, the guidance offers a clearer operational framework for builders operating functional networks. However, because staff guidance does not carry the formal weight of rule-making, issuers must remain cautious when marketing early-stage tokens prior to full network decentralization.
