SEC Staff Says Routine Crypto Network Upgrades Usually Fail Howey Test
A staff FAQ also outlines when staking receipt tokens may qualify as digital tools or digital commodities.
SEC staff said routine maintenance, security work and upgrades for functional crypto networks generally do not satisfy the key managerial-efforts requirement under the Howey test, narrowing when those activities may support an investment-contract analysis.
The Division of Corporation Finance’s FAQ, published Sept. 25, applies the view to services that improve network functions, strengthen security or promote network effects. It also includes funding or sponsoring development projects among activities that generally do not qualify as the essential managerial efforts described in Howey once a crypto system is functional.
The FAQ addresses staking receipt tokens as well. A token that only records a holder’s ownership of an underlying digital commodity, without changing the holder’s rights, obligations or returns, may be treated as a digital tool. A receipt token issued by a protocol-based liquid-staking provider may instead qualify as a digital commodity.
The staff guidance also says buyback programs for nonsecurity crypto assets on functional networks generally do not constitute key managerial efforts. That treatment may change when a network is not yet functional and buybacks are promoted as a way to generate returns for holders.
The FAQ represents Division of Corporation Finance staff views, has no legal force and was not approved or rejected by the SEC.
