SEC Staff Say Governance Voters Are Not a Controlling Group in Nov 2 FAQ

Voting Alone Does Not Create Control

Unaffiliated token holders who vote through a crypto network's governance system generally do not form a controlling “group” under the U.S. Securities and Exchange Commission's digital commodity framework, staff of the agency's Division of Corporation Finance said in three answers added to its crypto-assets FAQ on Monday, Nov. 2. Question 1.4 turns on affiliation: individuals who vote independently, with no agreement, arrangement or understanding, formal or informal, to act in concert, including through delegation, are not a “group of persons or entities” when staff weigh whether a network has a “central party.” That term comes from the SEC's March 17 Interpretive Release, which defines a central party as a person, entity or group holding operational, economic or voting control of a crypto system, and states that a functional system has no such party overseeing who participates or who receives rewards.

Question 1.5 sets out what control looks like in practice: unilateral authority to grant or limit network access, change voting processes, alter code or reverse transactions, or to pick who joins consensus, the role that mining operators and validators fill on proof-of-work and proof-of-stake networks. Discretion exercised solely through a governance system whose participants are not themselves a central party generally does not qualify. Footnotes tighten the test further: a governance system must be transparent, rules-based and “wide and diverse,” with no concentration of power, including through delegation. Where token voting sits inside a foundation rather than a DAO, the foundation itself “could be a central party” if it controls another crypto system, for instance by setting operating parameters for applications deployed on the network. Staff also revised their Sept. 25 token buyback clearance on Sept. 28, so that all-clear now covers only a functional system with no central party. The answers carry “no legal force or effect.” The update follows an Oct. 19 comment letter from the Hyperliquid Policy Center on the SEC's proposed Regulation Crypto Assets, which warned that the central-party definition, read without the proposal's context, “could be misconstrued to capture any crypto system with a governance token.” The FAQ does not cite that letter.

Canton Coin Gets a Narrow Commodity Ruling

On Tuesday, Nov. 3, the same division applied the test to a named asset. In a no-action response signed by Deputy Chief Counsel Jonathan A. Ingram, the staff wrote that the Division views Canton Coin as a “digital commodity.” The conclusion rests on representations from Canton's counsel: the coin's value derives from how the network operates and from supply and demand, not from managers working to generate profits for investors, and no single person or group controls the network. The relief is deliberately narrow. Staff said they would not recommend an enforcement action over the specific creation of Canton Coin without securities registration, and Ingram cautioned that different circumstances could lead to a different conclusion. The letter also limits its scope to the creation process Canton described, so any change in how coins are made or who directs the network would require fresh review.

How demanding the control question is in practice shows up in ownership data. A European Central Bank (ECB) working paper covering 2022-2023 found the top 100 holders owned more than 80% of governance tokens in four protocols: Aave, Ampleforth, MakerDAO and Uniswap. Its October 2022 figures put protocol- or exchange-linked holdings at roughly 64%, 19%, 35% and 47% respectively, and many leading voters could not be identified. A 2026 Management Science study linked concentrated ownership to slower platform growth, though other factors can soften the effect. Governance disputes show the same dynamic in real time: ENS founder Nick Johnson held about half of active delegated votes while owning roughly 3% of supply, prompting a proposal to delegate five million treasury tokens, while Compound holders are voting on tighter treasury delays and veto powers.

Wide and Diverse Meets Concentrated Ownership

Read together, the FAQ and the Canton response give issuers a working checklist: independent voters pass, coordinated blocs and unilateral powers fail, and relief arrives only through specific representations, as the Canton Coin letter demonstrates. The control logic mirrors equity practice, where shareholders of a stock acting in concert can be treated as a controlling group. The harder condition is the “wide and diverse” footnote. Concentration measurements such as the ECB paper's top-100 share above 80% suggest many operating governance systems would struggle to meet it if staff ever examined them, and delegated voting compounds the problem, as the ENS dispute shows. The FAQ's list of unilateral powers also describes what emergency bodies actually do; Arbitrum's Security Council moved funds out of an address without its key on Oct. 30, a reminder that code-level authority and token votes are different things. More no-action requests built on the Canton template look likely.