SEC Establishes Criteria for Crypto Assets Not to Be Considered Securities

The U.S. Securities and Exchange Commission (SEC) has published new guidance clarifying the circumstances under which crypto assets will not be considered securities. The guidance addresses functional tokens, token buybacks, network development efforts, and liquid staking tokens. Maintenance and development activities of crypto networks will not always be assessed as 'essential managerial efforts' under the Howey test. This means that the development of the network will not convert the token into a security. The SEC did not specify particular token names but provided categories indicating which tokens are not securities. These include fully functioning tokens with real use cases, tokens whose value is not tied to a company's future efforts, and tokens promoted by highlighting their current functionality. Additionally, it was noted that token buybacks may not be sufficient to be considered investment contracts. A different assessment may be made if the buyback program is presented as an investment model. The guidance also emphasized that receipts for liquid staking transactions could be evaluated as digital commodities rather than securities. The SEC reiterated that a crypto asset may not be a security on its own, but the manner of its sale could create an investment contract. The new guidance indicates that U.S. regulators continue to operate within their existing authorities despite the Clarity bill failing to pass a vote in the Senate.