Can a token buyback make a coin a security? SEC staff say it hinges on one word
New SEC staff FAQs say a buyback on a working, "functional" network is not a promise of managerial effort. Projects that are not yet functional are warned off marketing buybacks as yield.
Key points
- On September 25, 2026, SEC staff published nine FAQs on when crypto assets are tied to an investment contract, the test for a security.
- A buyback on a functional network is not a promise of managerial effort. On a network that is not yet functional, pitching it as yield could be.
- The FAQs have no legal force and lean on the proposed Regulation Crypto Assets, which would allow raises of up to $75 million a year.
What SEC staff published
On September 25, 2026, SEC staff told token teams that buybacks on a working network are not, by themselves, a securities problem. The answer came in a set of frequently asked questions published by the Division of Corporation Finance, the staff office that oversees company disclosures and offerings. There are nine questions in two groups: three on how crypto assets are classified and six on assets tied to an investment contract. They are staff views and have no legal force or effect.
An investment contract is the legal test, from the Supreme Court's Howey case, that decides when a deal counts as a security. A key part of that test is whether buyers rely on the "essential managerial efforts" of others.
The buyback answer
Question 2.5 is the one many token teams were waiting for. Staff say that for a functional system, announcing a buyback program is not a promise of essential managerial efforts. For a system that is not yet functional, it could be one if the issuer presents the buyback as creating yield or return for token holders, the FAQ says.
In plain terms: buybacks on a live, working network look fine in the staff view. Marketing buybacks as a return on investment before the network works is risky.
The FAQ lists the kinds of buybacks it has in mind: treasury management, reducing supply, burns funded by a protocol and rebalancing. The answer covers buybacks of crypto assets that are not themselves securities.
The other answers, in short
According to the staff FAQ:
- Promotion: talking up a system's current use is likely not a promise of managerial effort. Vague talk about future potential likely is not either, unless it promotes profit potential.
- After launch: once a system is functional, work to secure, maintain or improve it, including funding development, is not essential managerial effort.
- No central party: statements about a functional system that no one controls likely do not create a new investment contract.
- Handing off: an issuer's promises do not disappear just because another party takes them over.
- Staking receipts: a staking receipt token for a non-security digital commodity is a "digital tool" that shows ownership. One issued by a protocol-based liquid staking provider may itself be a digital commodity.
- Exchanges: a trading platform is a promoter only if it meets the definition in Securities Act Rule 405.
What 'functional' and 'receipt' mean
The first group of answers deals with definitions. Staff say the terms "functional" and "decentralized" do not decide whether an issuer kept its promises, because each issuer sets its own thresholds. They do matter for how the Commission classifies a crypto asset, the FAQ says.
On receipts, staff set a strict test. A receipt certifies that an asset was deposited and shows who owns it. It does not change the asset's rights or add incentives, and the issuer never gains ownership or control, so it cannot lend or pledge the deposited asset. The test is relevant to liquid staking tokens, which the FAQ treats separately.
The safe harbor in Regulation Crypto Assets works in a similar spirit. SEC Chairman Paul Atkins said an issuer that certifies it has stopped the essential managerial efforts it promised, and meets other conditions, would no longer have its asset treated as subject to an investment contract. He credited Peirce's earlier safe harbor proposal for the idea and said the SEC still supports Congress passing the CLARITY Act. "We are charting a road to invite innovators back to the United States," he said.
The proposed rule behind the FAQs
The FAQs lean on the SEC's proposed Regulation Crypto Assets, released on August 18, 2026. That proposal would let issuers raise up to $5 million in one offering over four years, or up to $75 million in each 12-month period with financial statements and ongoing reports. It would also offer a safe harbor treating a qualifying crypto asset as not subject to an investment contract, and would preempt state registration rules for these offerings, the SEC said. Atkins said the goal is "clear pathways to raise capital under the federal securities laws". The proposal was published in the Federal Register on August 21, 2026, with comments due by October 20, 2026, under file number S7-2026-27.
Offering caps in proposed Regulation Crypto Assets
US$ million
Source: SEC, Press release 2026-76
Timeline
SEC proposes Regulation Crypto Assets
Proposal published in the Federal Register
Corporation Finance publishes nine crypto FAQs
Comment period on Regulation Crypto Assets closes
LC Insight analysis
This section is our reading of the facts above, not a statement of fact.
- We think the buyback answer will change how tokens are designed. Teams with live networks now have cover to run buybacks. Early-stage projects have a clear reason to drop yield language until their system works.
- Everything hinges on "functional," and each issuer sets its own threshold. That gives teams room, but it also invites a fight later if the SEC disagrees with how a team drew the line.
- Staff FAQs bind no one and can change overnight. We expect the Commission to fold some of these answers into a final Regulation Crypto Assets, which would give them real weight.
What's next
- The SEC's review of comments on Regulation Crypto Assets
- Any update to the FAQ page, which staff can revise at any time
- How token projects change buyback announcements in the coming months
Disclaimer. This article is based on public information and the sources listed below as of the update time shown. It is for information only and is not investment, legal or tax advice. Figures may change as companies and authorities publish new data.
Sources
- SEC Division of Corporation Finance, FAQs on crypto assets (September 25, 2026)
- SEC, Press release 2026-76, Regulation Crypto Assets (August 18, 2026)
- SEC, Chairman Atkins statement on Regulation Crypto Assets (August 18, 2026)
- Federal Register, Regulation Crypto Assets, proposed rule (August 21, 2026)
