U.S. SEC staff says functional crypto is not an investment contract on support alone

The U.S. SEC’s Division of Corporation Finance released an FAQ on Sept. 25 on how federal securities laws apply to crypto assets and related transactions, saying staff views suggest a cryptocurrency with sufficient functionality is unlikely to be treated as an investment contract solely because an issuer or related party continues to support the system’s security, maintenance, upgrades or user growth. The FAQ also said a staking receipt token, which verifies ownership of digital assets deposited through staking, could be classified as a digital tool when the underlying asset is not an investment contract and the token’s role is to evidence ownership. If issued by a protocol-based liquid staking provider, it could also be classified as a digital commodity, according to the FAQ. It added a buyback plan for a functional cryptocurrency also does not, in principle, amount to an investment contract. That could change, however, if the asset is not yet sufficiently functional and the buyback is promoted as a way for token holders to generate profits. The SEC said the FAQ reflects the views of Division of Corporation Finance staff rather than an official SEC rule or regulation and does not have legal force.