SEC Staff Adds Crypto Guidance on Governance and Control

The Securities and Exchange Commission’s Division of Corporation Finance added three questions to its crypto asset FAQ on November 2, explaining how staff views governance participation, control over system functions and decentralization in digital-commodity analysis. The update says broad tokenholder participation alone generally does not make voters a controlling group, but unilateral authority over key network functions can indicate central control. Questions 1.4 through 1.6 expand on the division’s framework for assessing whether a crypto system has a central party: a person, entity or group with operational, economic or voting control. The staff guidance focuses on the actual arrangements and powers involved, rather than treating the existence of token voting or a governance organization as decisive. Under the answer to question 1.4, unaffiliated participants generally are not treated as a group when they have no separate agreement, arrangement or understanding to act together beyond taking part in governance. The same approach applies when governance is conducted through an organization, association or foundation and participation depends on holding the system’s native...