SEC staff clarifies securities-law treatment of crypto assets

SEC Division of Corporation Finance staff issued FAQs on how federal securities laws apply to certain crypto assets and transactions involving them. The FAQs say definitions of “functional” and “decentralized” do not determine whether an issuer fulfilled its representations or promises. Each issuer determines the thresholds for those representations or promises. The definitions remain relevant to the classification of crypto assets. A Staking Receipt Token can be a digital tool when it represents a digital commodity that is not subject to an investment contract. A Staking Receipt Token may instead be a digital commodity when a protocol-based Liquid Staking Provider issues it. The FAQs define a receipt as an instrument that certifies that a stated amount of an asset was deposited with a depository or custodian. A receipt evidences the depositor’s ownership of the deposited asset. A receipt does not change the deposited asset’s rights, obligations, or benefits. A receipt does not give the holder additional financial incentives or benefits. A receipt issuer cannot transfer, lend, pledge, rehypothecate, or otherwise use the deposited asset. Promotional communications qualify as representations or promises to engage in essential managerial efforts based on the facts and circumstances. Promotion of a crypto system’s current utility and capabilities likely would not qualify without more. Promotion of potential utility, features, and capabilities through indefinite aspirational statements likely would not qualify without more when the promotion says nothing about potential profit. A non-security crypto asset does not separate from an associated investment contract when another party assumes the issuer’s representations or promises. After a crypto system becomes functional, services to secure, maintain, improve, or enhance the system or its functionality would not involve essential managerial efforts. Activities that facilitate network effects would also not involve essential managerial efforts. Promises to provide those services after the system becomes functional would not satisfy the Howey test. The FAQs cite Regulation Crypto Assets, Release No. 33-11434, dated August 18, 2026, for that view. Statements by an issuer about a functional crypto system with no central party likely would not create a new investment contract. A buyback announcement would not constitute a representation or promise to undertake essential managerial efforts when the crypto system is functional. Such an announcement could constitute a representation or promise when the system is not functional if the issuer presents the buyback as creating yield or return for token holders. A trading platform offering a secondary market would be considered a promoter only if it meets the definition of “promoter” in Securities Act Rule 405.