SEC’S NEW STRATEGY: BUILDING AFTER LAUNCH WITHOUT HOWEY For years, cryptocurrency projects have grappled with a difficult legal question: when does software development cease to be an investment promise and become ordinary software development? The SEC’s Corporate Finance Division has now drawn a clearer line. In a set of FAQs published on September 25, staff indicated that developers may continue to secure, maintain, and improve an already-operational blockchain network, fund development projects, and help expand network effects—without these activities automatically constituting “essential managerial efforts” under the Howey test. The same document also addresses an issue even closer to traditional finance: token buybacks. Once a cryptocurrency system is operational, announcing a buyback of a non-security digital asset does not, by itself, constitute a promise of essential managerial efforts. However, before the system is live, marketing such a buyback as a source of income or profit could alter the analysis. The emerging distinction is not between active and absent developers. It is between developers who sustain a functioning product and buyers who are investing in promises of what that product will become. Cryptocurrency does not have to become abandoned software. The issue stems from something traditional tech companies rarely need to explain: software is constantly changing. Blockchains require security updates. Developers fix bugs. Protocols add features. Organizations fund development. Ecosystems spend money to attract applications and users. In the crypto space, these activities can overlap with Howey’s theory because the investment contract analysis considers whether buyers reasonably expect profits based on the essential managerial efforts of others. This creates a potentially odd outcome: a network may already be operational, yet developers responsible for its upkeep still appear economically vital to token holders—simply because they haven’t stopped developing it. The SEC staff’s response is far more practical. Once a cryptographic system is operational, services such as securing, maintaining, improving, or enhancing the system—or facilitating network effects—are not considered “essential managerial efforts” as understood in the FAQs. Funding and financing development projects may also fall under this category. Thus, ongoing development does not automatically become problematic. What buyers were promised before the product went live remains far more significant. The official disclosure may matter more than GitHub updates. This becomes especially clear in the section on marketing. Staff suggest that promoting the current utility and capabilities of a cryptographic system likely won’t suffice to constitute a promise of essential managerial efforts. Projects can even discuss potential future features and utilities using vague, aspirational language—as long as that information doesn’t promote profit potential. The analysis still depends on specific facts and circumstances. This gives development teams a clear distinction in how they communicate with users. A project explaining how its network functions—or discussing features it hopes to develop—is different from telling token buyers that the team’s future work will generate financial returns for them. This makes marketing content more than just branding. Websites, token documentation, social media posts, and buyback announcements can help determine what buyers are genuinely led to expect from those building the network. Buybacks illustrate this distinction more clearly than almost anything else. Token buybacks are particularly compelling because they resemble familiar practices in traditional investing. Projects may use protocol revenue or treasury assets to repurchase their own tokens. Sometimes assets are burned. Sometimes supply is reduced. Sometimes projects publicly discuss potential impacts on token holders. But staff do not treat the mere existence of a buyback program as decisive. For an effectively operational cryptocurrency system, announcing a buyback of a non-security digital asset does not constitute a promise of essential managerial efforts. For a system not yet operational, the outcome may differ if the issuer presents the buyback program as a source of income or profit for holders. Thus, buybacks are only one part of the analysis. How the project convinces buyers to embrace the idea matters just as much. This serves as a useful warning for crypto development teams considering borrowing language from public company share buybacks. Calling token buybacks an “investment return” for investors carries very different implications than describing them as treasury management, supply reduction, or protocol-funded token burns.Deposit receipts are evaluated based on what they actually do. The FAQ section applies a similar functional approach to receipt token deposits. A deposit receipt token represents a digital good that is not an investment contract and may be considered a digital asset when it merely evidences the holder’s ownership of the deposited asset. Deposit receipts issued by a liquidity deposit service provider based on a protocol can be considered digital goods because their value is tied to the programmed activity of a functioning cryptocurrency system and market supply and demand. However, staff also impose strict limits on what qualifies as a receipt. This instrument cannot add new economic rights or benefits to the deposited asset. More importantly, ownership or control cannot be effectively transferred to the issuer. This means the issuer cannot lend, pledge, rehypothecate, transfer, or otherwise use the deposited asset, or subject it to the control of any third party. This distinction helps differentiate between two structures that may appear similar on a trading interface. One token may simply evidence ownership of an asset held elsewhere. Another token may exist within a structure where the underlying assets are economically deployed. Calling both “receipts” does not mean they are the same. A cryptocurrency exchange does not automatically become a promoter. SEC staff also eliminate a potential underlying complication regarding secondary trading. Merely providing a market for a cryptocurrency asset does not automatically make the exchange a promoter of that asset. Under this analysis, a trading platform is considered a promoter only if it meets the definition of a “promoter” under Rule 405 of the Securities Act. This distinguishes providing liquidity from becoming part of the promotional machinery surrounding a token. This is a fairly specific clarification, yet critically important for a market where hundreds of assets may trade on the same platform without the exchange participating in their initial development or distribution. Final decentralization can undermine the power of the original issuer. The FAQ then describes what happens at the final stage of a project’s development. Assume an operational blockchain system with no central party controlling it. Staff state that statements from the original issuer are unlikely to create a new investment contract because neither the issuer nor any other party exercises sufficient control over the system to make decisions determining its success or failure. This creates an interesting lifecycle. In the early stage of a project, developers’ promises may be crucial because buyers may be relying on that team to deliver a product that currently does not function. Later, that same developer may become less relevant for legal analysis as the network becomes increasingly independent of any central party. The token itself has not necessarily changed. What has changed is who—if anyone—the holders still need to trust for the system to function. Real cryptocurrency projects need to reevaluate. Thus, the September FAQ provides projects with more useful guidance than just a vague directive on “decentralization.” Teams with operational networks can assess whether their ongoing development resembles maintenance and improvement rather than fulfilling investment promises. Marketing activities must be examined separately. Describing current utility is one thing; linking future development to holders’ profits may create a materially different profile. Communicating buyback programs requires similar discipline, especially before functionality is activated. And projects issuing deposit certificates or wrapped certificates must look beyond the token’s name to determine whether the deposited asset is truly owned and controlled by the depositor. None of these points are automatically considered absolute safe harbors. Staff always rely on specific facts and existing securities law concepts to reach conclusions. This is a map, not new SEC regulation. One important limitation must be noted in all interpretations of this document. These FAQs originate from the staff of the Division of Corporate Finance. They are not rules, regulations, or official statements by the Securities and Exchange Commission (SEC). The Commission has neither approved nor disapproved them, and the document explicitly states that these FAQs have no independent legal effect and create no new obligations. Their value lies in illustrating how staff currently approach situations cryptocurrency projects encounter after launch. And perhaps the most important explanation is also the simplest one: An operational blockchain does not require its developers to disappear. They can continue fixing code, funding development, and expanding the network.Securities law issues are increasingly focusing on one specific question: whether token holders still believe in promises that developers will generate profits for them, or whether they are simply using and holding an asset tied to software that continues to evolve. — Alexander Zdravkov