Staff at the Securities and Exchange Commission have added three new answers to their crypto FAQ, spelling out when token holders who vote on a network’s decisions count as the kind of “central party” that can keep a token in securities territory.
The update, dated Nov. 2, comes from the SEC’s Division of Corporation Finance. It adds questions 1.4, 1.5 and 1.6 to the FAQ the division first published on Sept. 25 and revised on Sept. 28. The answers explain how shared governance fits the SEC’s March 17 interpretive release, which says digital commodities are not themselves securities and describes a “functional crypto system” as one with no central party overseeing participation or handing out rewards.
Voting alone isn’t control. The release defines a central party as a person, entity or group with operational, economic or voting control of a crypto system. Answer 1.4 calls this a facts-and-circumstances question, but says people who take part in a network’s broad-based governance generally will not be treated as a “group” if they are not affiliated and have no agreement, arrangement or understanding, formal or informal, to act together outside the governance system itself. That includes coordinating through delegated votes. The staff says the same applies when governance sits inside a foundation or association and participation depends on holding the network’s native token. Even if voters did form a group, they would still need actual control to count as a central party.
What oversight looks like. Answer 1.5 lists the powers that do mark a central party: unilateral authority to grant or limit access, change voting processes for upgrades or token distributions, decide who can validate transactions, modify the network’s code, reverse transactions, or revoke access. A system generally has no such overseer when every material part of its operation runs automatically on rules-based code, or when any remaining discretion is exercised only through broad-based governance.
Working is not the same as decentralized. Answer 1.6 separates the two ideas. A functional system lets its native token do what it was programmed to do. A decentralized system runs without any person or group holding operational, economic or voting control. The staff says the degree of decentralization can vary.
The limits. These are staff views, not a Commission rule. The FAQ says the answers have no legal force or effect, do not change the law and create no new obligations, and the Commission has neither approved nor disapproved them. The staff also limits the “group” answer to the digital-commodity question; it does not carry over to other parts of securities law, such as the definition of an exchange.
For projects that run on token votes, including DAOs and foundation-led networks, the practical test is now clearer: who can actually change the rules, stop users, or undo transactions, alone or together.
What to watch: whether the Commission itself adopts any of this, including in its Regulation Crypto Assets proposal from August, which the FAQ already cites, and how projects with foundations or heavy vote delegation describe their own control in filings.
Sources: SEC, Cryptonews.