‘Biggest loophole ever?’ a16z challenges SEC crypto buyback FAQ
The word “functional” now carries a lot of weight. How much will it bear in court?
The SEC offered much-needed regulatory clarity on crypto token buybacks on the 25th of September. However, crypto venture firm a16z has flagged it as a ‘loophole’ that can be negatively leveraged by the next administration against the industry.
And yet, not every industry leader agrees with a16z’s interpretation, even the SEC itself.
Why SEC’s stance on crypto buybacks is crucial
As part of continued regulatory guidance for the sector after the CLARITY Act stalled, the SEC released FAQs and its interpretations. On crypto token buybacks, the agency clarified,
Where a crypto system is functional, an issuer’s announcement of a non-security crypto asset buyback program would not constitute a representation or promise to undertake essential managerial efforts.
In other words, it will not trigger a securities law violation if there is no central party (fully decentralized). So, commodity tokens don’t become a security because of buybacks.
However, if the crypto system isn’t functional and has a central party, such offerings will be viewed as a promise to use buybacks to create yield or returns for token holders. Put differently, it will constitute an ‘investment contract’ and need SEC registration.
Reacting to the clarity, Uniswap CEO Hayden Adams hailed it as ‘bangers.’ Uniswap had previously stayed away from buybacks, fearing regulatory enforcement by the Biden-era SEC.
However, they began UNI buybacks last year, and Arca CIO Jeff Dorman believes the guideline will improve the industry, which has become a “wasteland of inflationary L1s.”
Why a16z thinks SEC crypto buyback rule is a problem
However, a16z warned that the industry should not be too quick to celebrate, as the guideline had a ‘loophole’ that could come back to bite the sector in the future.
In protest against the SEC stance, SEC Commissioner Hester Peirce, Miles Jennings, General Counsel at a16z, said,
Under this read, any startup can tokenize any revenue stream, sell those tokens to the public, and avoid securities laws. Maybe the biggest loophole ever. No way this holds up in court or any future administration. Just absurd.
Notably, the VC firm has been advocating for company-backed tokens (similar to shares/stocks) to be treated as securities while network tokens are commodities.
Clarifying the contentious interpretation, Commissioner Peirce said that the FAQ does not apply if there is a ‘central party.’ Still, Jennings disagreed with her argument.
Interestingly, other prominent crypto lawyers such as VB Capital’s Scott Johnsson and Gabriel Shapiro agreed with Jennings. According to them, the FAQs could “open up a can of adverse selection worms.”
It’s unclear if the SEC will improve the FAQ and guidelines to capture the feedback. That said, crypto token buybacks hit $638M in 2026, dominated by Hyperliquid.
Final Summary
- SEC clarified that some token buybacks are not investment contracts or securities
- But a16z’s Miles Jennings warned that the guideline is a risky ‘loophole’
