SEC Clarifies Token Buybacks, Easing Crypto Network Concerns
The U.S. Securities and Exchange Commission (SEC) has issued a significant clarification regarding token buybacks for cryptocurrency networks, potentially resolving a long-standing area of uncertainty for the industry. In an update to its crypto Frequently Asked Questions (FAQ) on Friday, the SEC’s Division of Corporation Finance stated that announcing a token buyback does not constitute a promise of “essential managerial efforts” once a network is operational.
This distinction is crucial under the Howey test, which determines whether an asset qualifies as a security based on an expectation of profit derived from the efforts of others. By clarifying that a buyback announcement alone does not meet this threshold for functional networks, the SEC has provided much-needed clarity for protocols that have operated in a state of regulatory ambiguity.
The SEC staff further elaborated that maintaining, upgrading, or expanding a functional network, or promoting its current activities, does not qualify as an investment contract. Similarly, vague aspirational statements that do not promise profit are also excluded. Gabriel Shapiro, a securities attorney at MetaLeX Labs, noted that the buyback guidance “goes further than I expected,” suggesting that the SEC’s application of securities laws to crypto is becoming increasingly nuanced.
However, the guidance maintains a clear boundary. If a network is not yet functional and an issuer promotes a buyback as a source of yield or returns for token holders, it can still fall under securities regulations. Therefore, the guidance acts as a filter rather than a blanket exemption. The message is clear: launching a working product and subsequently engaging in token buybacks is permissible, whereas promising returns before a product is developed carries regulatory risk.
The announcement is poised to benefit numerous projects that have implemented token buyback programs. Data from DefiLlama indicates that protocols such as HYPE, PUMP, ENA, AAVE, SKY, LDO, PENDLE, AERO, RAY, JTO, NEAR, ETHFI, SYRUP, LIT, ASTER, KMNO, MET, CC, CARDS, PONS, and STONK, among others, operate live products with revenue streams that fund these buybacks. For instance, Hyperliquid utilizes USDC reserve yield for HYPE buybacks, while Pump.fun has burned $451 million worth of tokens. Pons directs approximately 80% of its V1 revenue to buybacks, and Ethena’s holders have approved routing 95% of net revenue to ENA buybacks. These initiatives, previously operating in a legal gray area, now appear to have regulatory endorsement.
The SEC’s guidance quietly validates a model that the industry has increasingly adopted: viewing tokens as claims on protocol cash flow rather than speculative bets on future development. This “revenue meta” has now received regulatory approval, suggesting a potential re-evaluation of the valuations for projects demonstrating strong revenue generation.
