Does the latest FAQ from the SEC clarify that token buybacks and network upgrades do not automatically constitute securities?

This document is not a permit issued by the SEC Commission for operations but rather a specific response to an existing analytical framework.

Written by: Daii

Many people interpret this set of documents as two positive outcomes.

The project party can buy back tokens now. The project can continue development after going live.

This understanding overlooks key limitations.

The September document is not permission from the SEC Commission for any operation, but a specific response from staff of the corporate finance division to the existing analytical framework. More accurately, the March Commission explanation proposed a lifecycle analysis, and the September staff FAQ further specified the repurchase and subsequent development issues.

The question is no longer just whether a token is abstractly "a security," but whether it is connected to the issuer's commitment in a particular contract, transaction, or arrangement; whether purchasers still reasonably expect to profit from the issuer's necessary managerial efforts.

1. First, correct the title: This is not "buyback equals legality"

The FAQ issued by the SEC Corporate Finance Division on September 25, 2026, is very narrow, and it is just staff guidance. The page explicitly states that this FAQ is not an SEC rule, regulation, or Commission statement, has no independent legal effect, and does not alter existing law.

It discusses non-security crypto assets, and the relevant crypto systems must already be functional. Under these premises, an issuer declaring a buyback plan does not constitute a commitment to the necessary managerial efforts referred to in the Howey analysis.

In this statement, the real weight lies in three limitations: non-security crypto assets, functional systems, the buyback announcement itself.

The FAQ also states that if the system is not yet functional, and the issuer promotes the buyback as a source of profit or return for token holders, such announcement may constitute a commitment to necessary managerial efforts.

Therefore, the project party cannot rewrite the FAQ as "the SEC approved token buybacks." It neither approved specific projects nor recognized that all buybacks are not subject to securities law.

Statements like "We will continuously buy back with revenue, so holders will profit from business growth" will directly link the team's management with the buyers' profit expectations. Whether it ultimately constitutes an investment contract must still be judged in light of the complete transaction arrangements and all facts.

The accurate conclusion is: The buyback announcement will not automatically create an investment contract merely because it uses the name "buyback"; it also will not automatically eliminate existing securities law issues.

2. What matters is that assets and investment contracts can be analyzed separately

The Howey test examines whether a contract, transaction, or arrangement involves an investment of money, a common enterprise, and a reasonable expectation of profits derived from the efforts of others. The name, code form, or "utility" label is not a decisive answer.

The SEC Commission explanation and the attached CFTC guidance became effective on March 23, 2026. The explanation proposed that a crypto asset that is not itself a security can be bound by an investment contract within a specific issuance arrangement; when buyers no longer reasonably expect the issuer to perform the necessary managerial efforts associated with it, it may separate from that investment contract.

Thus, a more accurate question is: Who sold what, at what time? What commitments related to necessary managerial efforts did the issuer make? Do buyers still reasonably expect these commitments to be connected to the asset?

Related commitments listed in the explanation include developing specific functions, completing software milestones in the roadmap, and open-sourcing related code. After the issuer fulfills its necessary managerial efforts, even if it continues software work that is not part of the necessary managerial efforts, the asset does not have to be permanently bound by the original investment contract.

However, "go-live of the mainnet" is not an automatic completion standard.

The explanation explicitly states that whether functional or decentralization commitments have been met should be judged based on how the issuer defines or describes these goals when marketing the investment contract, rather than based on industry-wide concepts formed retrospectively.

If you commit to a payment network, you cannot use normal block generation as the sole basis for acceptance. If you commit to an open lending market, whether core permissions are still held by a single company may relate to initial statements.

White papers, official websites, and fundraising materials can thus become important evidence for determining what the purchaser was informed about. This is a practical implication based on the explanatory documents, and does not mean that every statement in the white paper will automatically become legally binding contract terms.

3. Network upgrades receive limited clarification, not universal exemption

FAQ Q2.3 states that after a crypto system has become functional, providing, sponsoring, or funding developments to secure, maintain, improve, or enhance the system or its functions, as well as to promote network effects, typically does not fall under the necessary managerial efforts referred to in the Howey analysis.

This acknowledges a basic fact: software still needs security patches, client-side optimizations, interface improvements, and development tools after going live. The team continuing to write code is not sufficient evidence that holders still rely on the team to complete the work tied to the initial financing.

However, the premise remains that the system must be "functional." Furthermore, the FAQ footnote explicitly states that functionality adopts the definition from the March explanation, Section III.

Therefore, maintenance and undelivered development cannot be distinguished solely by the number of Git commits. Bug fixes and compatibility improvements are typically closer to maintenance; fulfilling core functions promised at issuance, or creating new revenue rights and profit commitments, may require reanalysis.

The project party can establish a chain of evidence for functionality completion as follows:

Distinguish core functions, acceptance criteria, and future vision in the issuance materials;
Separate work that must be completed before launch from maintenance matters afterward;
Preserve records of versions, audits, permission changes, open-source contributions, and governance transitions;
Publicly state completion criteria upon important commitments being fulfilled;
Document significant upgrades, noting whether they are maintaining an existing system or creating new economic rights or new commitments.

This is not a mandatory checklist dictated line by line by regulatory documents, but rather risk management advice derived from analyzing the facts and circumstances.

4. Buyback designs primarily concern consistency between promotion and facts

The FAQ lists reasons for buybacks such as treasury management, reducing supply, agreement-funded buyback, and rebalancing. These examples illustrate that buybacks can have different economic purposes and cannot be judged by name alone.

The project party should still separately examine sources of funds, decision-making authority, external language, and actual trading behavior.

Existing agreement rules executing automatically, versus companies freely deciding when to buy tokens with future revenues, is not the same fact. Pre-disclosed rules and core team plans that may pause with price fluctuations can lead to different buyer expectations as well.

More importantly is the language. "Treasury rebalancing" and "returning company growth to holders" may point to different economic narratives. But wording is not the only factor: regulators and courts will still look at the actual arrangements rather than accept only the labels chosen by the project party.

The Regulation Crypto Assets proposed by the SEC on August 18, 2026, is still only a proposed rule; its official project page states that issuers using the proposed exemptions will still be subject to federal securities law's anti-fraud and anti-manipulation provisions.

Therefore, the FAQ cannot serve as a defense against false statements, significant omissions, or manipulation of trades. Disclosure of the buyback policy regarding budgets, timelines, authorized entities, conditions for pausing, and execution results is a prudent practice to reduce information asymmetry, but these items are not a unified statutory checklist listed in the FAQ.

5. "Product first" is a risk management conclusion, not a new statutory provision

This framework is generally more favorable to projects that already have functionality and whose key commitments can be verified. For arrangements of "first issue coins, then develop," it will expose more Howey facts.

If the system is not yet capable of completing the advertised work, and buyers provide development funds while the project party explicitly commits to rely on its own engineering, operations, and market actions to create adoption and profit opportunities, then these facts may support an investment contract analysis. However, the ultimate conclusion must still be judged on a case-by-case basis and cannot be automatically classified as violating securities law simply because the project is in its early stages.

For project parties, a more robust sequence is:

Early financing should choose equity, debt, compliant security issuance, or other legal instruments based on their true economic nature.
Before wide distribution of tokens, make current functionality independently verifiable.
Separate existing uses from future visions, and do not write the roadmap as already delivered facts.
Avoid simultaneously claiming that the system has been fully decentralized while promising that insiders will enhance token value through numerous future actions.
Set completion standards for important commitments that allow for evidence retention.

These are compliance suggestions derived from regulatory texts, not a mandatory issuance sequence dictated by the SEC.

It should also be emphasized: later separations will not erase early issues. The March explanation clearly states that liabilities for unregistered issuance and significant false statements or omissions during the investment contract's duration will not disappear merely because assets later separate from the investment contract.

6. CFTC updates clarify that "tokenized forms" are starting to enter existing rule analysis

CFTC staff announced an update to the FAQ on September 24, 2026, addressing the tokenization of customer funds investing in permitted investment products, and the use of blockchain technology to meet record-keeping obligations of registration agencies.

The official press release can directly confirm these two update topics, but does not list all the conditions for the newly added questions in the body text. The FAQ PDF that has been reviewed remains the March version and only includes Q1 to Q11. Thus, specific wording for the newly added September questions cannot be fabricated from outside the press release.

The March version of the FAQ has already confirmed two narrower boundaries.

First, Q4 clearly states that Staff Letter 26-05 did not change the list of approved investments for customer funds under Regulation 1.25; futures commission merchants cannot invest customer funds in payment stablecoins. Payment stablecoins may appear in other restricted scenarios, but that does not mean it is an approved investment of customer funds.

Second, Q5 discusses uncleared swap collateral, not customer fund investments. It permits the use of tokenized forms of eligible collateral, provided that the assets meet original regulatory requirements and grant holders the same or functionally equivalent legal and economic rights as traditional forms.

The read March version FAQ permits the use of tokenized forms within another narrower scenario—eligible collateral for uncleared swaps—but requires the assets to meet original regulatory conditions and grant holders the same or functionally equivalent legal and economic rights as traditional forms. This statement cannot be transplanted directly into all conditions for customer funds investment without verifying against the original text of newly added questions.

A reasonable common direction is that tokenization will not expand existing asset lists solely based on technological packaging; original investments, margins, custodianship, and risk rules remain important. As for the complete conditions of the newly added customer funds Q&A, it shall be subject to the updated original FAQ text.

7. Project parties need two worksheets, not a "regulatory release" poster

The first worksheet can be called commitment sheet.

List important statements from the white paper, official website, fundraising materials, founder interviews, and governance proposals, recording the audience, completion standards, responsible parties, current status, and evidence. The focus is not to treat all marketing language as contracts but to identify which statements may lead purchasers to reasonably expect the team to complete the work determining the project's success or failure.

The second worksheet can be called rights equivalence sheet.

For stablecoins, tokenized government bonds, fund shares, and other RWAs, compare ownership, income, redemption, transfer, custodianship, and bankruptcy treatment item by item between traditional forms and tokenized forms. The balances shown in smart contracts cannot independently prove that holders legally possess equivalent rights.

By putting SEC and CFTC materials together, a reasonable inference can be drawn in one direction: regulatory analysis increasingly focuses on actual commitments in transactions, buyer expectations, and underlying rights, rather than just whether blockchain is used. This judgment is a synthesized inference, not a jointly issued policy statement from the two institutions.

The legal hierarchy must still be written into the conclusions:

The September SEC FAQ is merely the viewpoint of corporate finance division staff and has no independent legal effect;
The March document contains SEC Commission explanations and CFTC guidance but does not replace binding precedents;
Regulation Crypto Assets remains a proposed rule as of this review date;
CFTC FAQ is a non-binding staff-level guidance and explicitly does not create enforceable rights or new binding rules.

Therefore, what the project party receives is more specific analytical materials, not exemptions from court scrutiny, private litigation, state law, anti-fraud obligations, or other national regulation.

More difficult questions still exist: If so-called upgrades create new revenue rights, sub-networks, or secondary tokens, is it essentially maintenance of the old system, or new contracts, transactions, or arrangements? The FAQ does not provide answers for all variants.

What truly needs to be re-examined is still who made what commitments to whom and whether buyers reasonably expect to profit from those efforts.

References

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