On September 25, the Corporate Financing Department of the U.S. Securities and Exchange Commission (SEC) released a set of frequently asked questions to further clarify the application of pledged token certificates, packaged assets, token repurchases, and functional networks under the current interpretation of securities laws. The document emphasizes that these contents represent only the views of the staff and do not constitute new regulations, nor are they official decisions by the commission.
How to Identify Pledge Certificates
SEC Staff members stated that if a token merely serves to prove the holder's ownership of an underlying digital asset, it can be considered a "digital tool" under certain conditions, rather than a security. The key to making this determination lies not in its name, but in the rights it actually grants to the holder, as well as how the underlying asset is held.
According to these instructions, the so-called "certificate" needs to meet several conditions: it only proves that a certain amount of assets has been deposited, and the holder still retains ownership of those assets; it does not change the original rights of the underlying assets, nor does it grant any additional financial benefits.
At the same time, the issuer cannot use this portion of assets as its own assets; it cannot transfer, lend, pledge, or use them for any other purposes. These assets cannot also become the subject of recourse by the issuer's creditors. SEC states that this explanation also applies to redeemable packaged assets.
The nature of protocol-based liquid collateral requires separate judgment.
Regarding certificates issued by providers of protocol-based liquidity collateral services, SEC staff stated that in certain circumstances, such tokens may also be classified as "digital commodities." This is contingent on their value being related to the performance of an already functional encryption system, as well as market supply and demand dynamics.
The document also mentions that even if holders can receive rewards generated from the underlying collateral assets, it does not mean that the token itself creates this right or determines the amount of the reward. The staff believes that the key issue remains whether the token itself has added any new income commitments.
Functional Network Impact Assessment
This FAQ also addresses a more complex scenario: some tokens may have been sold along with investment contracts in the early stages, but as the network gradually develops its functionality, their legal analysis may not remain unchanged.
SEC Staff members indicate that once the encryption system has acquired its necessary functions, tasks related to network security, maintenance, upgrades, development funding, and promoting increased usage will not necessarily continue to constitute the 'core management efforts' on which investors rely. Even if the issuer commits to continuing to provide these services, it may not necessarily meet the relevant requirements being tested in Howey.
However, whether the "functionality" has been achieved still needs to be judged in conjunction with the specific commitments made by the issuer to the buyer beforehand. Staff members stated that it is not possible to assume that the tokens have surpassed the original investment contract analysis without considering the earlier statements made by the project team.
Repurchase is handled on a case-by-case basis by the platform.
Regarding the token buyback issue, the staff at SEC distinguished between different stages of a network's development. If an encryption system already has certain functionalities, and the issuer announces a buyback of a non-security token, it does not necessarily imply a commitment to generate profits for holders through management actions.
However, before the network has developed such functionality, if the project party describes the repurchase as being able to bring benefits or returns to the holders, this statement may affect the interpretation of securities law.
Regarding market promotion, staff also set clear boundaries: introducing the existing uses of the network generally does not equate to making profit commitments; vaguely discussing possible future features, if not linked to potential profits, is also less likely to be seen as a commitment to 'core management efforts'.
FAQ also mentioned that just because a US trading platform lists a certain token on the secondary market, it does not automatically qualify as the ‘promoter’ of that token. Whether it constitutes a promoter still depends on whether it meets the existing definitions under Section 405 of the Securities Act. Rule
Additional information:SEC stated that this batch of FAQ has no legal effect, does not change federal securities laws, and has not been formally approved or rejected by the committee; its main function is to refine some applicable terms in the crypto asset framework of March this year.
