This article was compiled and organized by BlockWeeks
Late last week, the U.S. Securities and Exchange Commission (SEC) Division of Corporation Finance released a set of Frequently Asked Questions (FAQ) to implement the Commission's March 17 interpretive release—namely, how the federal securities laws apply to crypto assets. The FAQ is expressly the staff's view, does not represent the Commission's rules or statements, and has no legal force, but it gives the market a glimpse into how current SEC staff intends to operate its regulation. The FAQ mainly covers three areas.
I. Token Classification: What Counts as a Staking Receipt Token?
On the classification question, if a "Staking Receipt Token" is a receipt representing a digital commodity not subject to an investment contract, then it itself falls under the "digital tool" category under the SEC's five-factor token classification (Q1.2), because it performs the actual function of proving the holder's ownership of the underlying asset. And if issued by a protocol-based Liquid Staking Provider, the token may be classified as a digital commodity, because its value is tied to the programmatic operation of a "functional crypto system" and supply-and-demand dynamics.
Q1.3 defines a "receipt" (a definition that also applies to redeemable wrapper tokens), referring to "an instrument that proves a specific quantity of assets has been deposited with the depository or custodian issuing the receipt, and that proves the depositor's ownership thereof." A receipt has three characteristics: 1) it does not change any rights, obligations, or benefits of the deposited asset; 2) it gives the holder no additional financial incentive or benefit; 3) it does not transfer ownership or control of the underlying asset to the issuer, so the issuer may not for any reason transfer, lend, stake, re-stake, or otherwise use the asset.
II. Investment Contracts: Promoting "Current Utility" Does Not Constitute a Promise of Necessary Managerial Efforts
As for investment contracts, promoting the current utility of a crypto system, or promoting its uncertain aspirational functionality without mentioning profits, likely does not constitute a promise of "necessary managerial efforts." Once the system is already functional, services provided to secure, maintain, improve, enhance the system, or drive network effects likewise do not involve necessary managerial efforts and do not satisfy the Howey test.
III. Buybacks: The Most Scrutinized Part of the FAQ
Q2.5 asks: whether an issuer's announcement of a buyback plan for a non-security crypto asset (whether for treasury management, supply reduction, protocol-funded burns, or rebalancing) itself constitutes a statement or promise that "necessary managerial efforts will be undertaken"—one path by which a token sale could fall within a Howey investment contract. The staff replied that if the crypto system is functional and no central party exists, such an announcement does not constitute such a promise.
Notably, on September 28, 2026—three days after the FAQ was released—the staff added the phrase "and no central party exists." Previously, industry critics said the original wording only required "functional," which was too broad. If the system is not yet functional, and the issuer describes the buyback as creating income or returns for token holders, then the announcement could still constitute such a promise.
The FAQ does not explain how a buyback announcement should be assessed for a system that is "functional but has a central party." Since the answer no longer covers this situation, presumably it should return to the general facts-and-circumstances Howey analysis—though this is our lay inference, not the staff's statement.
IV. Definition of Key Terms
The FAQ follows the terms defined in the March interpretive release:
Functional: A system is functional if its native crypto asset can be used on the system according to its programmatic utility.
Decentralized: A system is decentralized if it operates autonomously, with no individual, entity, or group holding operational, economic, or voting control.
Central party: Defined using the same control test as decentralization. Therefore, the revision to Q2.5 effectively sets the precondition for the buyback answer as "decentralized," although the FAQ does not say so explicitly.
V. Regulatory Context and Industry Controversy
The document builds on a series of prior important documents: the landmark 2017 DAO Report, the 2019 staff framework, and the 2025 statements on meme coins, mining, stablecoins, and staking—the latter having been superseded by the March 2026 interpretive release.
FAQ 2.3 cites the proposed Regulation Crypto Assets, which would establish two issuance exemptions ($5 million within four years; $75 million in project fundraising per 12 months), and provide a conditional "safe harbor" for situations where an investment contract no longer exists. The September 17 "Innovation Exemption" covers exchange and dealer status in tokenized stock trading, belongs to the same "Project Crypto" initiative, but is a separate action and is not mentioned in the FAQ.
The FAQ received considerable opposition, with the most concentrated criticism aimed at the buyback section (Q2.5)—which was revised three days after its initial release to add the qualifier "no central party exists in the system that carries out the buyback," whereas the pre-revision answer only emphasized the protocol's functionality. Supporters interpret the revision as: a clear path for functional projects to conduct buybacks, with the announcement not being viewed as necessary managerial efforts. Given that buybacks potentially triggering securities laws has been a lingering concern overhanging the market, this is seen as a major victory. But critics argue the definition is too broad, which has triggered a great deal of questioning.
For example: a widget manufacturing company could sell tokens to the public and use a portion of the revenue from selling goods to buy back and burn the tokens. Because the smart contract receiving payments can operate normally, and the company has made no explicit promise, under the FAQ's logic, the token would be excluded from securities laws, even though its function resembles a profit-sharing interest. Strictly speaking, one could argue that the FAQ applies only to non-security digital assets, so the company's token would not qualify, but a critical reading of the text would question: where exactly in the text does this limitation appear?
VI. Questions Still Unanswered
The divergence between skeptics and supporters points to a deeper question: distinguishing an "enterprise" from a "protocol" seems to require examining control, which is very close to decentralization; but the SEC's prior investment contract analysis did not treat decentralization as a factor, instead depending on the issuer's statements, or its promise to carry out necessary managerial efforts. In a revision a few days after release, the staff responded to this concern by explicitly adding "and no central party exists." The revised wording states: "Where a crypto system is functional and no central party exists, an issuer's announcement of a buyback plan for a non-security crypto asset does not constitute a statement or promise to carry out necessary managerial efforts."
Even after the revision, unresolved questions remain. The buyback answer was narrowed to systems that are "functional and have no central party," but the FAQ does not explain how buybacks should be assessed for projects with a central party, nor does it define how much influence counts as "control." The former is a problem specific to the new version of the FAQ, while the latter is a long-standing problem. The SEC has defined "control" in other documents—for example, the Innovation Exemption defines it as the power to direct the management or policies of a trading venue—but it does not say whether that definition applies to the "central party" standard in the FAQ. (By Zack Pokorny)
