The U.S. Securities and Exchange Commission's (SEC) Division of Corporation Finance released a frequently asked questions document on crypto assets on September 25, translating the framework interpretation from March of this year into specific scenarios. The market immediately took notice because the four matters this document addresses happen to be the four things that project teams have been most uncertain about and most likely to be questioned on over the past two years: token buybacks, staking receipt tokens, ongoing development after network launch, and the legal identity of secondary market trading platforms.
First, the nature of this document needs to be made clear. According to the original text published by the SEC, these answers represent the views of the Division of Corporation Finance staff, not rules, regulations, or formal statements of the Commission. The Commission has neither approved nor disapproved their content. The document itself has no legal force, does not modify existing law, and does not create new obligations for anyone. Therefore, reading any single item as meaning "this type of conduct is no longer a security from now on" is an oversimplification. Its real value lies in the fact that, for the first time, it relatively clearly explains which facts the staff will look at when determining whether an investment contract relationship still exists.
Key Points
Functionality is the dividing line for the entire analysis. Whether the network is already functional determines how the same action (for example, announcing a buyback) will be interpreted. The same announcement, placed on a functional network versus on a network that has not yet launched, carries completely different legal implications.
A buyback does not automatically change the nature of a token, but the way it is framed does. On a functional network, announcing a buyback is not considered by the staff to constitute a promise to undertake essential managerial efforts; where the network is not yet functional, if the project team packages the buyback as a means of creating income or returns for token holders, that announcement may be viewed as such a promise.
Staking receipt tokens have been placed within a strict "receipt" definition. The receipt can only prove ownership of the deposited asset; it must not change the rights, obligations, or benefits of that asset, must not allow the issuer to transfer, lend, stake, or rehypothecate the deposited asset, and must not subject it to third-party claims.
Maintenance and upgrades after functional realization are no longer considered essential managerial efforts. Ensuring security, maintenance, improvement, enhancing system functionality, or promoting network effects through sponsorship or funding development projects do not fall on the managerial efforts side of the Howey test.
Trading platforms do not automatically become promoters merely by providing a secondary market. The test returns to the definition of "promoter" under Rule 405 of the Securities Act, and whether it applies depends on the facts themselves.
Why Functionality Became the Starting Point for the Entire Analysis
Who Holds the Power of Definition
The first set of questions in this document addresses a seemingly technical but actually critical issue: the March interpretive document provided definitions of "functional" and "decentralized," while also saying that when judging whether an issuer has fulfilled its promises, one should look at how the issuer itself originally defined or described these two terms, rather than the general understanding of the market. How can these two sets of standards coexist?
The staff's answer separates the two. The definitions provided by the Commission have nothing to do with whether an issuer has fulfilled its promises, because the threshold for achieving functionality or decentralization is set by each issuer in its own statements; however, these definitions are directly relevant to how the Commission classifies crypto assets. In other words, classification looks at the official definitions, while performance looks at what the issuer originally said.
The practical significance of this distinction for project teams is quite direct. Wording in white papers, roadmaps, and fundraising materials about "mainnet launch being deemed functionality" or "governance transfer being deemed decentralization" is no longer just market communication language; it will become the reference point for determining later whether an investment contract has already terminated. The vaguer the wording, the harder it is to determine that a promise has been fulfilled; the more specific the wording, the more likely it is to form a verifiable endpoint.
Classification and Investment Contracts Are Two Separate Layers
To understand this point, one needs to return to the framework of March 17. According to the press release issued by the SEC at that time, the Commission acted in parallel with the Commodity Futures Trading Commission (CFTC) to provide a token taxonomy that divides crypto assets into digital commodities, digital collectibles, digital tools, stablecoins, and digital securities, and explains how crypto assets that are not themselves securities may become subject to an investment contract, and how they may escape that constraint. The full text of the interpretive document forms the entire terminological basis for this FAQ.
Therefore, asset classification and investment contract analysis are two independent layers. A token can be a digital commodity while at the same time being covered by an investment contract because of the manner of sale and the issuer's promises; when the promises are fulfilled or no longer exist, the investment contract may terminate, while the token's classification does not change. Almost all of the work in the September document unfolds at the second layer.
Under What Circumstances Token Buybacks Enter Investment Contract Analysis
Buybacks on Functional Networks
The document acknowledges that issuers of non-security crypto assets conduct buybacks for various reasons, including treasury management, supply reduction, protocol-funded burns, and rebalancing. In response to the question of whether announcing a buyback constitutes a promise to undertake essential managerial efforts, the staff's answer is conditioned on the state of the network: where the crypto system is already functional, an issuer's announcement of a buyback program for a non-security crypto asset does not constitute such a promise.
The Block's report noted that this item, together with network upgrades and marketing statements, formed the most closely watched part of this document, but also emphasized that its application is conditional and not a blanket statement about all buybacks.
Non-Functional Networks and Return Narratives
The other half of the condition deserves even more attention from project teams. When the crypto system is not yet functional, if the issuer presents the buyback as a way to create income or returns for token holders, that announcement may constitute a promise to undertake essential managerial efforts, thereby falling within the scope of the Howey test analysis.
This effectively draws a line bounded by narrative. The same buyback announcement, if it only explains the source of funds, execution pace, and supply impact, does not carry the same legal weight as describing it as a source of returns for token holders. For projects still in the construction phase and not yet having delivered full functionality, writing buybacks into an "investment return" narrative is the highest-risk form of expression.
Buybacks Are Becoming an Industry Norm, Which Is Why the Document Attracted Attention
The reason this item was amplified by the market is that buybacks in 2026 have already moved from isolated experiments to a common method of capital allocation. According to a report by The Crypto Times citing Allium Labs data, crypto projects spent about $638 million on token buybacks in the first eight months of this year, compared with only about $366,000 for all of 2024, with Hyperliquid and Pump.fun together accounting for nearly 90%. The same report mentioned that Lido said in August that it planned to conduct regular buybacks after reaching certain thresholds including $40 million in annualized revenue, while Jupiter invested nearly $14 million in buybacks during the year, yet its token still fell about 55% over the past year.
This set of data illustrates two things. First, buybacks have become a sufficiently large capital flow that any ambiguity in regulatory treatment will create real costs. Second, there is no stable relationship between buybacks and price, and promoting them as a return promise is equally untenable commercially.
What kind of definition have staking receipt tokens been placed into
The strict meaning of a "receipt"
The document defines the concept of a "receipt" with an entire question. In this context, a receipt refers to a certificate that proves a certain quantity of assets has been deposited with the custodian or depositary that issues the receipt, and that proves the depositor owns the deposited assets. It does not change any rights, obligations, or returns of the deposited assets, nor does it provide the holder with any additional financial incentive or benefit.
More critically, it is its distinction from other financial instruments: a receipt does not transfer ownership or control of the deposited assets to the issuer of the certificate, and the issuer may not for any reason transfer, lend, pledge, rehypothecate, or otherwise use the assets, nor subject them to third-party claims. This is a fairly high threshold, strictly distinguishing a "certificate" from a "wealth management instrument issued on the basis of deposited assets."
A digital tool or a digital commodity
On the question of classification, the staff offered two possibilities. When a staking receipt token is a receipt for a digital commodity that is not subject to an investment contract, it is itself a digital tool, because its actual function is to prove the holder's ownership of the underlying digital commodity. But if the certificate is issued by a protocol-based liquid staking provider, it may also be classified as a digital commodity, on the grounds that it is intrinsically linked to the programmatic operation of a functional crypto system and derives value therefrom, while also being affected by supply and demand.
The document's footnote further points out that staking receipt tokens generally do not possess their own intrinsic economic attributes or rights; although holders are entitled to receive rewards generated by the underlying digital commodity, the certificate itself does not create this right, nor does it guarantee, generate, or determine the amount of the rewards.
This distinction is of no small significance to the liquid staking sector. According to DefiLlama's liquid staking sector data, the locked scale of such protocols has long ranked among the top sectors of decentralized finance, with Lido alone at the scale of tens of billions of dollars. The way receipt tokens are issued at the protocol level, the redemption mechanism, and whether the underlying assets are reused will directly affect whether it falls on the side of a "digital tool" or a "digital commodity," and these two categories are treated differently in the Commission's token classification framework.
Network upgrades and ongoing development have been moved off the side of managerial efforts
Software is always iterating; how does the law treat it
The document directly confronts a contradiction that has long troubled developers: software is in a state of continuous development due to maintenance and upgrades, and functional networks also need network effects to grow, so after the system becomes functional, what can the issuer and other market participants still do without constituting essential managerial efforts?
The staff answered by citing the Commission's recent statements: once a crypto system is functional, services provided to safeguard, maintain, improve, or enhance the system and its functionality, or to promote network effects, whether through sponsoring or funding development projects or similar activities, do not involve essential managerial efforts. Therefore, the issuer's statements or promises to provide or continue to provide (or arrange for the provision of) such services after the system becomes functional do not satisfy the Howey test. This statement is quoted from the August 18 Regulation Crypto Assets proposal, i.e., File No. 33-11434.
The practical effect of this answer is to distinguish the Ethereum-style long-term evolution model from the investment contract logic of "the issuer continuously operating to create returns." Activities such as protocol upgrades, security audits, ecosystem funds, and developer incentives no longer naturally become evidence for a securities determination.
A network without a central party
Another question goes further: when a functional crypto system has no central party, can the issuer's statements create a new investment contract? The staff believes that in this case, the issuer's statements about the system are very likely not to create a new investment contract, on the grounds that neither the issuer nor anyone else holds control over the system and cannot take actions that affect the system's success or failure.
This answer in effect provides a relatively safe space for teams that "still speak after decentralization," but its preconditions are very hard: both functionality and the absence of a central party must be satisfied at the same time.
An investment contract does not disappear because someone else takes it over
The document also closes off an obvious workaround. In response to the question of whether, when the issuer's statements or promises are taken over by another party, a non-security crypto asset separates from the investment contract and is no longer bound by it, the answer is no: whether the takeover is voluntary or occurs by operation of law, separation does not occur. This means that packaging and transferring promises to a foundation or a new entity does not automatically clear the existing investment contract relationship.
Whether trading platforms count as promoters
The March interpretive document expanded "issuer" to include affiliates and agents of the issuer or promoter, and this statement once caused many secondary market platforms to worry that they would be drawn into an investment contract determination. This document responds to this: a trading platform that provides a secondary market for a crypto asset will be regarded as a promoter only when it meets the definition of "promoter" under Rule 405 of the Securities Act.
The meaning of this sentence is to send the question back to the existing general definition, rather than creating a broader new standard for the crypto industry. The concept of a promoter under Rule 405 points to a role that participates in initiating and organizing an enterprise and thereby obtains securities or consideration, rather than a venue that merely provides matching and liquidity. For operators listing assets on platforms such as MEXC, the risk that truly needs to be managed is not "whether a trading pair was provided," but whether the statements and promotional activities during the listing process crossed that line.
The practical impact on project teams and trading platforms
The value of the wording has risen
Taking the six questions together, the most consistent signal is: in the staff's analysis, facts and statements carry very heavy weight. Publicizing existing functions and capabilities generally does not constitute a promise to engage in essential managerial efforts; describing potential functions in uncertain, visionary language, if it contains nothing about the possibility of profit, generally does not constitute one either. Conversely, as long as the materials clearly and specifically connect the issuer's efforts with the profits purchasers can expect, the analysis result may change.
For project teams, this means that market communication documents need to be aligned with the legal wording, rather than proceeding separately. For trading platforms, the wording in listing announcements, campaign pages, and research content has likewise entered the scope of what needs to be reviewed.
The rules are still on the way
It should be emphasized that these answers are based on a proposal, and the proposal has not yet become a rule. According to the SEC's rules page, Regulation Crypto Assets was released on August 18, published in the Federal Register on August 21, and the comment deadline is October 20. The proposal includes two registration exemptions, one allowing offerings of up to $5 million within four years, and the other allowing offerings of up to $75 million every 12 months, and also includes a conditional safe harbor to define when certain crypto assets are no longer considered subject to an investment contract.
White & Case's analysis points out that the proposal only addresses the issuance side, leaving trading, custody, and exchange regulation to other rulemakings still on the agenda. Paul Hastings' policy tracker shows that in the same week, the Federal Reserve proposed rules for stablecoin issuers, the CFTC updated frequently asked questions related to tokenized investments, and regulatory actions advanced simultaneously on multiple fronts. In other words, the current clarity is阶段性, and the actual rule text still has to go through comment collection and possibly litigation tests.
What It Means for Ordinary Investors
Regulatory documents like this rarely change prices immediately, but they change the long-term tradable scope of assets. The clearer the rules, the more compliantly listed assets there are, and the lower the cost of market making and liquidity. For investors who use Bitcoin as a reference asset and then observe the relative performance of altcoins, first understanding the relationship between Bitcoin's real-time price and overall risk appetite is usually more valuable than chasing a single regulatory headline. Readers who are just starting to get in touch with this market can learn the basic process from the Bitcoin buying beginner's guide, or directly check the operating instructions for how to buy BTC, or learn about the current participation methods on the BTC Carnival event page.
After the regulatory tone is set, how the market will move, go to the BTC/USDT order book to see real-time changes
James Mitchell's Exclusive View
In James Mitchell's view, what is truly important about this document is not what it loosened, but that it shifted the power of judgment from "what was done" to "what was said, and at what stage it was said." Actions such as buybacks, upgrades, and issuing certificates are almost stripped of legal color in themselves, and the decisive variable becomes whether the network has functionality, and whether the project party's statements tie its own efforts to purchasers' profit expectations. This is a disclosure-centered framework, not a framework centered on types of conduct, and it benefits teams with good wording discipline while disadvantaging teams accustomed to using yield narratives for growth.
There are two places where the market is most likely to misread. The first is reading the answer about buybacks as a universal conclusion while ignoring the premise of "functionality," as well as the clear reverse scenario of "packaging buybacks as a source of yield when functionality is not yet present." The second is treating staff opinion as a rule. The document itself states very clearly that it has no legal effect and does not modify existing law; and the Regulation Crypto Assets it cites is still only a proposal, with the comment period not closing until October 20, and there is still a considerable distance from proposal to final draft and then to possible judicial review. During this period, any position assumption based on "regulation has already given the green light" lacks support.
The three clues most worth tracking next are as follows. The first is feedback during the comment period, especially disagreements among industry, banking, and investor protection groups over safe harbor conditions, which will determine how tight or loose the final draft is. The second is whether project parties' disclosure language really changes; the frequency of words such as "yield" and "return" in buyback announcements is an observable indicator of compliance culture. The third is structural adjustment in the liquid staking sector, whether certificates are reused, whether redemption is immediate, and whether the underlying assets may be subject to third-party claims. These issues, originally belonging to protocol design, are now simultaneously classification issues. According to DefiLlama's sector data, the scale of this sector is large enough that any change in classification standards could produce visible capital migration.
From a cross-asset perspective, the methodology of this document actually converges with the regulatory thinking of mature markets: it does not ask what a financial instrument is called, but asks what economic function it performs in a specific transaction and what commitments the issuer has made to counterparties. Traditional markets took decades to form this habit of judgment centered on substance over form, and the crypto market is being pushed onto the same path. For project parties, this means that disclosure capability will gradually become a competitive advantage, not just a compliance cost. For trading platforms, the professionalism of listing standards and content review is more likely in the future to become one of the factors distinguishing peers. None of this constitutes a judgment on price trends. The volatility of crypto assets is still dominated by liquidity, cycles, and risk appetite, and the regulatory framework merely redraws the long-term range of assets that can be participated in.
Frequently Asked Questions
Does this document mean that token buybacks will no longer involve securities law issues?
No. The staff's answer comes with clear conditions: where the crypto system already has functionality, announcing a buyback plan for non-security crypto assets does not constitute a promise to undertake essential managerial efforts. But if the system does not yet have functionality, and the issuer presents the buyback as a way to create yield or returns for holders, such an announcement may constitute such a promise and thus enter investment contract analysis. The judgment depends on the network's status and the manner of expression, not on the act of buyback itself.
What are staking receipt tokens, and how will they be classified?
Staking receipt tokens are certificates proving that the holder owns the underlying assets deposited. According to the document, when they correspond to digital commodities not subject to an investment contract, they themselves are digital tools; if issued by a protocol-based liquid staking provider, they may be classified as digital commodities because they are intrinsically linked to and derive value from the programmatic operation of a functional crypto system. The certificate itself does not create reward rights, nor does it determine the amount of rewards.
What kind of certificate does not count as a true "receipt"?
The standards given in the document are quite strict. A receipt must prove that a certain amount of assets has been deposited with a custodian and prove the depositor's ownership. It must not change any rights, obligations, or benefits of that asset, and must not provide additional financial incentives. More critically, it must not transfer ownership or control of the deposited assets to the issuer. The issuer must not transfer, lend, stake, rehypothecate, or otherwise use the assets, nor may it allow them to be subject to third-party claims. If any one of these is not satisfied, it is not a receipt in this context.
Will continued development and upgrades by the project party after launch be deemed essential managerial efforts?
According to the Commission statement cited by the staff, once a crypto system has functionality, services provided to safeguard, maintain, improve, or enhance the system and its functions, or to promote network effects, including sponsoring or funding development projects, do not involve essential managerial efforts, and the related promises do not satisfy the Howey test. The premise remains that the system already has functionality, and the meaning of this term follows the definition in the March interpretive document.
Will trading platforms be regarded as promoters because they provide a secondary market?
They will not automatically be regarded as promoters. The document points out that a trading platform providing a secondary market for a crypto asset will be deemed a promoter only if it meets the definition of promoter under Rule 405 of the Securities Act. This sends the question back to existing general standards, with the judgment based on the role the platform actually plays in the project's initiation, organization, and promotion, rather than whether it has listed the asset.
What is the relationship between this FAQ and the March interpretive document?
The March 17 interpretive document established the framework, dividing crypto assets into five categories: digital commodities, digital collectibles, digital tools, stablecoins, and digital securities, and explaining when non-security crypto assets are subject to investment contracts and when they can escape them. The September FAQ is not a new framework, but the staff's answers on the application of that framework in specific scenarios. All terms not otherwise defined follow the meanings in the interpretive document.
What other regulatory milestones are worth watching next?
The nearest one is the comment deadline for Regulation Crypto Assets, which is October 20. The proposal was released on August 18 and published in the Federal Register on August 21. It includes two issuance exemptions and one conditional safe harbor. The proposal addresses only the issuance side, leaving trading, custody, and exchange regulation to subsequent rulemaking. Time is still needed from proposal to final draft, and the terms may change in the meantime.
Disclaimer
The above content is provided only for general market and policy information and does not constitute any investment advice, financial advice, legal advice, tax advice, or trading recommendation. The explanation of regulatory documents in this article is an interpretation at the media level and cannot replace professional legal advice. Compliance judgments involving specific projects or businesses should consult a licensed lawyer with the appropriate qualifications. The prices of crypto assets, stocks, and other related financial assets may fluctuate significantly, and historical performance, technical indicators, and on-chain data cannot guarantee future results. The regulatory documents, proposal status, timelines, and market data cited in the text may change with subsequent developments, and the latest official information released by the relevant institutions should prevail. Before making any decision, readers should conduct their own research and carefully judge in light of their own financial situation, investment objectives, and risk tolerance. The MEXC Crypto Pulse team assumes no responsibility for any direct or indirect losses arising from the use of the information in this article.
