SEC Staff Say Functional Crypto Network Maintenance Upgrades Generally Do Not Constitute Securities Under the Howey Test

The SEC's Division of Corporation Finance issued crypto asset Frequently Asked Questions on September 25, and PANews reported the guidance on September 26. The staff said that once a crypto system reaches a functional status, services that provide security maintenance, improvements, feature enhancements, or promotion of network effects—including funding or sponsoring development projects—usually do not represent the “key managerial efforts” identified by the Howey test. The staff added that commitments to provide those services generally do not, by themselves, satisfy that element of the test.

Functional status as the dividing line

The guidance turns on whether the crypto system is already functional. For a functional network, security maintenance, improvements, feature enhancements, and efforts to promote network effects are described as services rather than as the controlling managerial input that the Howey test would emphasize. The staff also treated funding or sponsoring development projects as part of that service category in the functional-network context.

This distinction matters for readers who track token classifications because the Howey test asks whether investors expect profits primarily from the efforts of others. The September 25 Frequently Asked Questions narrowed one part of that inquiry by saying that service commitments for functional networks usually do not meet the “key managerial efforts” requirement. The document addressed specific scenarios rather than providing a universal answer for every token on a functional network.

Staking receipts, digital instruments, and digital commodities

The staff guidance also addressed staking receipt tokens. It said that if a staking receipt token merely proves that its holder owns the underlying digital commodity, and if the token does not change the holder's rights, obligations, or yields, the token can be treated as a “digital instrument.”

The guidance added another possible treatment for the same kind of receipt: when it is issued by a protocol-based liquid staking provider, the receipt may also be viewed as a “digital commodity.” The distinction rests on what the receipt represents and whether it changes economic rights attached to the underlying asset.

Buybacks and non-functional networks

The Frequently Asked Questions also covered buyback programs. It said that buybacks of non-security crypto assets carried out by functional networks usually do not constitute key managerial efforts. The staff then noted a separate condition for networks that have not yet become functional, where buybacks are advertised in a way that connects to the network's status. The available text stopped before completing that final clause, so the full consequence cannot be stated from the material provided.

For market observers, the main takeaway is that the staff tied the analysis to two practical facts: whether the network is functional and whether the action being reviewed—maintenance, sponsorship, a receipt token, or a buyback—changes the rights or economic promise held by the purchaser. The September 25 guidance gives a clearer framework for those scenarios, while leaving open how any particular token arrangement would be evaluated under all parts of the Howey test.