The regulators moved first
The SEC didn’t wait for Congress. On September 28, the agency updated its staff FAQs covering how securities laws apply to functional blockchain networks, token buybacks, staking receipt tokens and promotional statements, according to Grafa. The timing matters: the update landed less than two weeks after the Senate voted down the Digital Asset Market Clarity Act, and it shows the SEC and the CFTC are now writing their own rules for the industry rather than waiting on a bill that failed by a single vote.
The substance is narrower than the politics around it, but it answers a question that has kept token issuers in legal limbo for years. The SEC said certain buyback programs run by functional crypto systems without a central party would not create investment contracts, according to Grafa. CFTC Chairman Michael Selig called the update consistent with “the agency’s ongoing efforts to provide regulatory clarity for the crypto industry,” per Grafa.
Key Takeaways
- The SEC updated its crypto staff FAQ on September 28, covering functional networks, buybacks, staking receipt tokens and promotional statements.
- The guidance says buybacks by functional, non-centralized systems generally won’t create investment contracts, but it’s a filter, not a blanket exemption.
- The update came after the Senate rejected the CLARITY Act 49 to 50 on September 15, pushing agencies to act on their own authority.
- The CFTC issued parallel guidance on tokenized permitted assets and revised accounting rules, and has sent a broader market-structure proposal to the White House.
What the FAQ update actually changes
The SEC’s Division of Corporation Finance revised the buyback answer on September 28, and the change tightens the condition rather than loosening it. The Defiant reported that the original September 25 answer referred only to a network’s functionality, while the revised wording makes the absence of centralized control an explicit requirement. In practice, a project has to clear two bars, not one: the network has to work, and no central party can be steering it.
Decrypt laid out what that means under the Howey test, which asks whether buyers expect a company to work on their behalf to generate returns. Once a network is functional, the SEC’s staff position is that announcing a buyback doesn’t amount to a promise of “essential managerial efforts.” Maintaining, upgrading or growing a working network doesn’t satisfy Howey either, and neither does promoting what a network currently does or making vague statements that don’t tout profit.
Gabriel Shapiro, a securities attorney at MetaLeX Labs and former general counsel at Delphi Labs, told Decrypt the buyback section “goes further than I expected.” He said securities law is starting to look “opt-in” as the SEC applies it to crypto, a comment that captures how much discretion the agency is exercising through FAQ updates rather than formal rulemaking.
A filter, not a blanket pass
The guidance draws a hard line on the other side of that test. If a network isn’t functional yet and its issuer pitches a buyback as a source of yield or returns for holders, that can still trigger securities laws, per Decrypt’s reporting. Ship a working product first, and a buyback program is on firmer ground. Promise returns before the product exists, and the exposure remains.
Decrypt noted that DefiLlama tracks buyback programs at more than a dozen tokens, including HYPE, PUMP, ENA, AAVE, SKY, LDO, PENDLE, AERO, RAY, JTO, NEAR, ETHFI, SYRUP, LIT, ASTER, KMNO, MET, CC, CARDS, PONS and STONK. Hyperliquid routes USDC reserve yield into HYPE buybacks under its AQAv2 mechanism, Pump.fun has burned $451 million (about 16.6% of supply), Pons sends roughly 80% of its V1 revenue to buybacks, and Ethena holders voted to route 95% of net revenue to ENA, according to Decrypt. Each of those programs operates a live product with revenue, which is exactly the fact pattern the SEC’s updated answer addresses.
Why the agencies moved without Congress
The Senate rejected the Digital Asset Market Clarity Act (H.R. 3633) by a 49 to 50 vote on September 15, according to DigitalToday. The bill collapsed over disagreements about government officials’ cryptocurrency holdings and how to regulate stablecoins, leaving the industry without a legislative framework ahead of the November midterms.
With that path blocked, DigitalToday reported that the SEC and CFTC are each using existing administrative authority instead. The SEC is separately advancing a proposal for flexible registration exemptions for crypto startups, with caps of up to $5 million and $75 million, and a related public hearing runs through October 20. SEC Commissioner Hester Peirce has criticized the agency’s prior hardline approach as treating investors “like infants,” per DigitalToday.
The CFTC’s guidance, issued in parallel with the SEC’s update, covers customer investments in tokenized permitted assets and blockchain-based recordkeeping, according to Grafa. DigitalToday reported that the CFTC has also revised accounting rules for tokenized assets and sent a broader market-structure proposal into the White House approval process. Both agencies’ efforts are coordinated under an inter-agency framework called Project Crypto, which divides digital assets into five categories ranging from digital commodities to securities.
The industry’s political response has been to lobby harder rather than wait for another legislative attempt. Blockchain Association CEO Summer Mersinger is stepping down on October 16, with Christine Smith taking over, and Coinbase CEO Brian Armstrong joined the Stand With Crypto coalition in launching a voter mobilization campaign, according to DigitalToday. Market reaction to the guidance itself was muted: Bitcoin traded in an $84,000 to $86,000 range and major altcoins including XRP and NEAR held near recent highs, per DigitalToday.
What to Watch
The SEC’s public hearing on registration exemptions for crypto startups runs through October 20, and the terms of that proposal, including the $5 million and $75 million caps, are still open for comment. The CFTC’s broader market-structure proposal is now sitting with the White House for approval, with no confirmed timeline. And the Blockchain Association’s leadership transition on October 16 will test whether the industry’s lobbying push changes ahead of the November midterms, or whether agency guidance continues to substitute for a bill that couldn’t pass the Senate.
