SEC Staff Issues New FAQs on Crypto Asset Classification

On September 25, the staff of the Division of Corporation Finance (CorpFin) of the Securities and Exchange Commission (SEC) issued frequently asked questions (FAQs) in connection with the SEC’s interpretive release issued on March 17, 2026 (Interpretive Release).

The FAQs address questions in two groups: (i) the classification of crypto assets under the Interpretive Release, including the treatment of staking receipt tokens and receipts, and (ii) the application of the investment contract analysis, including the scope of essential managerial efforts, separation of crypto assets from investment contracts, post-functionality maintenance activities, buyback programs, and the role of trading platforms.

Classification of Crypto Assets

The first group of FAQs addresses the classification of crypto assets under the framework provided in the Interpretive Release:

• Functional and Decentralized Definitions vs. Issuer Representations. The Interpretive Release’s discussion of crypto assets classified as digital commodities (Section III) states that a crypto system is “functional” if the native crypto asset can be used on such system in accordance with its programmatic utility, and “decentralized” if the crypto system functions and operates autonomously without a person, entity, or group of persons or entities having operational, economic, or voting control of the crypto system. However, the Interpretive Release’s discussion of crypto assets subject to an investment contract (Section IV) states that functionality and decentralization are determined based on how the issuer of a particular crypto asset had defined or otherwise described those terms in its own marketing and promotion of the investment contract – not a “general market conception” of what constitutes functionality or decentralization. The FAQs clarify that the definitions provided in Section III relate only to the SEC’s classification of crypto assets, not to the assessment of whether an issuer has achieved functionality and decentralization under Section IV.
• Staking Receipt Token Classification. Staking receipt tokens (in connection with digital commodities that are not securities) are classified as either (i) digital commodities if issued by a protocol-based liquid staking provider (because the token is intrinsically linked to and derives its value from the programmatic operation of a functional crypto system and supply and demand dynamics) or (ii) digital tools where liquid staking is not being enabled at the protocol level.
• Distinguishing a Receipt From Other Financial Instruments. The FAQs define “receipt” as an instrument certifying that a stated amount of an asset has been deposited with a depository or custodian and evidencing the depositor’s ownership. A receipt must satisfy three conditions: (i) it does not change the rights, obligations, or benefits of the deposited asset; (ii) it does not provide additional financial incentives or benefits; and (iii) it does not transfer ownership or control to the issuer. In contrast, the issuer of a receipt cannot transfer, lend, pledge, rehypothecate, or otherwise use the underlying asset or subject it to third-party claims.
  
  

Crypto Assets Subject to Investment Contracts

The second group of FAQs addresses when crypto assets become subject to, or separate from, investment contracts under the Interpretive Release:

• When Marketing Communications Constitute Essential Managerial Efforts. The FAQs address whether promotional or marketing communications by an issuer constitute representations or promises to engage in essential managerial efforts. CorpFin provides that this determination depends on the facts and circumstances, but reiterates that there is likely no promise to engage in essential managerial efforts where such communications are (i) promoting a crypto system’s current utility and capabilities or (ii) promoting a crypto system’s potential utility with indefinite aspirational statements, provided the promotional activities do not promote the potential for profit.
• Assignment of Essential Managerial Efforts and Separation. The FAQs clarify that no separation from an investment contract occurs where another party assumes the issuer’s representations or promises to undertake essential managerial efforts, whether affirmatively or by operation of law. Therefore, a mere assignment or transfer of the issuer’s obligations to a third party does not by itself cause the crypto asset to separate from an investment contract.
• Post-Functionality Activities. Given that crypto systems often need ongoing maintenance and improvements over time, the FAQs clarify that representations by the issuer to provide ongoing maintenance and improvements of the applicable crypto system are not representations or promises that involve essential managerial efforts.
• Statements by Issuers After Decentralization. Once a functional crypto system becomes decentralized, statements made by the issuer of the related native crypto asset thereafter likely do not create a new investment contract because, according to CorpFin, neither the issuer nor any other person has control over a decentralized functional crypto system that would affect its success or failure.
• Buyback Programs. The FAQs distinguish between buyback programs, supply reductions, protocol-funded burns, and similar activities (together, Buybacks) for crypto systems that are functional and have no central party and crypto systems that are not yet functional. The Interpretive Release defines “central party” as a person, entity, or group having operational, economic or voting control of a crypto system and provides that functional crypto systems must, inter alia, have no central party. Where a crypto system is functional (meaning, among other things, there is no central party controlling the crypto system), an issuer’s announcement of a Buyback would not constitute essential managerial efforts. However, where a crypto system is controlled by a central party or otherwise is not functional, such an announcement could constitute essential managerial efforts, particularly if the issuer presents the Buyback as creating yield or return for token holders. This distinction underscores the importance of the functionality determination in the investment contract analysis.
• Trading Platforms as Promoters. Under the Interpretive Release, the term “issuer” includes a “promoter” acting on behalf of the issuer. The FAQs clarify that a third party, including an operator of a trading platform, may fall within the definition of “promoter” if it meets the definition under Rule 405 of the Securities Act of 1933, as amended (Rule 405). Rule 405 defines “promoter” as any person who takes an initiative in founding or organizing the business or enterprise of an issuer or, in connection therewith, a person who holds 10 percent or more of any class of securities of the issuer.
  
  

Practical Takeaways

• Liquid staking providers and protocols should review their staking receipt token structures against the FAQs’ receipt framework. Providers should ensure their staking receipt tokens satisfy the three-part receipt test: the token must not (i) change the rights, obligations, or benefits of the deposited asset; (ii) provide additional financial incentives or benefits; or (iii) transfer ownership or control of the deposited asset to the issuer. Arrangements permitting the issuer to transfer, lend, pledge, rehypothecate, or otherwise use the underlying deposited assets would fall outside the receipt framework and could implicate securities law requirements.
• Operators of custodial staking services and similar products should confirm that their operational practices align with the narrow definition of “receipt” under the FAQs, which requires that the issuer cannot use, encumber, or expose deposited assets to third-party claims. Arrangements in which a custodian or a provider exercises discretion over whether, when, or how much of a depositor’s digital commodities to stake could fall outside the scope of the Interpretive Release’s safe harbor.
• Issuers and promoters of functional, decentralized crypto systems (which must have no central party with operational, economic, or voting control) have meaningful flexibility to communicate publicly about a crypto system’s native crypto asset. The FAQs indicate that once a crypto system is both functional and decentralized, with no central party, statements by the issuer likely would not create a new investment contract. However, issuers should be mindful of when the applicable crypto system becomes functional and decentralized in accordance with the representations and promises made at the time the native crypto asset was offered and sold.
• The FAQs’ guidance that securing, maintaining, improving, or enhancing a functional crypto system does not constitute essential managerial efforts provides comfort for issuers that wish to continue developing their platforms after achieving functionality. Issuers of functional crypto systems should document the date and basis on which functionality was achieved and maintain records distinguishing ongoing maintenance from unfulfilled pre-functionality commitments.
• CorpFin’s differential treatment of Buybacks for functional crypto systems with no central party and nonfunctional crypto systems means that issuers should carefully evaluate whether their crypto system has achieved functionality before announcing or engaging in Buybacks. If a crypto system has a central party or is otherwise not yet functional, Buybacks create risk of investment contract treatment, particularly if the Buyback is framed as creating yield or return.
• Trading platforms should assess their exposure under Rule 405. Platforms listing crypto assets for secondary trading should review whether their activities could cause them to meet the definition of “promoter” under Rule 405, particularly where the platform engages in marketing, endorsement, or other promotional activities beyond merely facilitating trading.
  
  

Lowenstein Sandler has significant experience advising crypto asset issuers, trading platforms, broker-dealers, and other financial institutions regulated by the SEC, FINRA, the CFTC, the NFA, and other federal and state regulators on the application of federal securities laws to digital assets and crypto asset transactions. Please reach out to one of the listed authors of this Client Alert or your regular Lowenstein Sandler contact if you have any questions regarding the FAQs or how they may impact your business.