SEC Staff Clarifies Howey Test Application to Functional Crypto Networks

The U.S. Securities and Exchange Commission (SEC) Division of Corporation Finance released an FAQ on September 25 stating that once a crypto system reaches a functional state, routine maintenance, security improvements, and feature enhancements generally do not constitute 'essential managerial efforts' under the Howey test. The guidance notes that staking receipt tokens representing ownership of underlying digital assets may be viewed as digital tools or commodities. Additionally, buyback programs for non-security assets on functional networks are typically not considered managerial efforts, unless the network lacks functionality and the buyback is marketed as a profit-generating mechanism. The SEC emphasized that these views represent staff positions and are not legally binding.