Protocols & Policy · Securities law
SEC staff say broad token-holder voting generally isn't a 'central party'
New answers from SEC corporate finance staff say broad token-holder voting generally does not make holders a 'central party,' the term for a person or group with operational, economic or voting control of a crypto system.
SEC staff say broad token-holder voting generally isn't a 'central party'
Staff at the Securities and Exchange Commission's Division of Corporation Finance said on Nov. 2 that people who vote on a crypto network's decisions simply by holding its token generally do not count as a "central party," the kind of party whose presence, as the staff frames it, means a crypto system is not functional, and digital commodities on a functional system "are not themselves securities." A central party, in the framework the staff applies, is a person or group with "operational, economic, or voting control of a crypto system" [1].
The answers are three new questions, numbered 1.4 to 1.6, each marked "added Nov. 2, 2026" on a page headed "Updated: Nov. 2, 2026. Originally Issued: Sept. 25, 2026" [1]. The page carries a plain limit: the FAQs "represent the views of the staff," "are not a rule, regulation or statement of the Securities and Exchange Commission," and "have no legal force or effect" [1].
How the test works
The FAQs build on an Interpretive Release "issued by the Commission on March 17, 2026," which, as the staff describes it, says digital commodities "are not themselves securities" and that a functional crypto system "does not have a 'central party' that oversees participation or distributes rewards to users" [1]. Whether a token's network has such a party is the question.
Question 1.4 asks whether a network's broad-based governance participants, meaning a wide and diverse mix of stakeholders who reach decisions through a transparent, rules-based system, as the staff defines it, form a "group of persons or entities." Staff call it "a facts and circumstances determination," then answer that participants "generally will not be considered a 'group of persons or entities'" if "they are not affiliated and do not have an agreement, arrangement, or understanding (whether formal or informal) to act in concert (including through delegation)" outside the voting itself [1]. "The answer is the same," staff wrote, where governance "is part of an organization, association, or foundation and participation in the broad-based governance system is based on holding the functional crypto system's native crypto asset." Even a group, staff added, "would have to have operational, economic, or voting control" to qualify. A footnote limits that view to the release's discussion of digital commodities and says it "has no relevance or application" to definitions in the Securities Act or the Exchange Act that address a group of persons or entities [1].
What the staff listed
Question 1.5 defines overseeing participation as having "the authority to control access to the crypto system at any level, whether at the protocol level, validator level, or user level," and lists four unilateral powers that would meet it, with two situations that generally would not [1].
| Type | Staff wording |
|---|---|
| Power 1 | "Grant or limit access to the crypto system" |
| Power 2 | "Determine or change the voting processes for software upgrades, protocol changes, or distributions of the crypto system's native crypto asset" |
| Power 3 | "Control who can participate in the consensus mechanism to validate transactions" |
| Power 4 | "Modify the crypto system's rules-based code, reverse transactions, or revoke access to the crypto system" |
| Exception 1 | "where every material aspect of the ongoing operation of the crypto system is executed automatically pursuant to rules-based code without discretion by any person" |
| Exception 2 | where discretion "is exercised solely through the crypto system's broad-based governance system, provided that the participants in that broad-based governance system are not considered a central party" |
Source: SEC Division of Corporation Finance FAQ 1.5, added Nov. 2, 2026.
Question 1.6 separates two terms: "'Functional' and 'decentralized' are distinct concepts." A functional system with a native digital commodity "has characteristics of decentralization, although the degree of decentralization can vary depending on the facts and circumstances" [1].
| Date | Event | Source |
|---|---|---|
| March 17, 2026 | Interpretive Release issued by the Commission | [1] |
| Aug. 18, 2026 | Regulation Crypto Assets proposing release, Release No. 33-11434, cited on the FAQ page (91 FR 54510, Aug. 21, 2026) | [1] |
| Sept. 25, 2026 | Staff FAQs originally issued | [1] |
| Sept. 28, 2026 | Question 2.5 on buybacks revised to add "and has no central party" | [1] |
| Nov. 2, 2026 | Questions 1.4, 1.5 and 1.6 added | [1] |
Table: Le Coin. A proposing release is the Commission's published proposal of a rule, not a final rule. Source: SEC Division of Corporation Finance FAQ page, accessed 1:23 p.m. ET Nov. 3, 2026.
The objection
The answers turn on qualifiers. "Generally," "facts and circumstances" and the requirement that voters have no side agreement "to act in concert (including through delegation)" leave the hard cases open. Staff also did not say any particular network passes.
The tell (Le Coin's view)
In Le Coin's reading, the weight sits in Question 1.5, not 1.4. By naming the power to "reverse transactions, or revoke access" as a mark of a central party, staff tied the securities question to specific controls a team can point to in its own code, rather than to who votes.
Sources
- SEC Division of Corporation Finance, "Frequently Asked Questions on the Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets," updated Nov. 2, 2026. https://www.sec.gov/about/divisions-offices/division-corporation-finance/faqs-crypto-assets (accessed 1:23 p.m. ET, Nov. 3, 2026)
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