The US Securities and Exchange Commission (SEC) Division of Corporation Finance updated its crypto-asset FAQs, stating that simply voting as a token holder does not make someone a controlling member of a crypto network. The SEC emphasized that the key factor is whether individuals or groups actually control the network, not just participate in governance votes.
SEC outlines network control criteria
The updated guidelines, issued on November 2, specify that unaffiliated token holders who vote independently are generally not considered a ‘central party’ for regulatory purposes. However, if voters coordinate their actions outside normal governance processes, SEC staff may view them as a group. Even then, a group must have real control over operations, economic decisions, or the network’s voting process to be classified as a central party.
The SEC’s March 17 interpretive release reinforced this approach, noting that functional crypto systems lack a central party directing participation or distributing user rewards.
A functional crypto system does not have a central party that oversees participation or distributes rewards to users.
Detailed examples provided by the SEC describe network control, including situations where a party has unilateral authority to limit access, select validators, change voting rules, modify the code, or reverse transactions. These clarifications outline how SEC staff determines control but do not impose new legal requirements. The FAQ reflects staff views and does not amount to binding regulation.
Functionality versus decentralization
Further SEC guidance points out that a network can function as designed while still being controlled by an individual or group. According to the SEC, demonstrating technical functionality does not prove decentralization. Whether a project has met promises about functionality or decentralization depends on its specific marketing claims, not on a universal industry standard.
Canton Coin and SEC’s no-action response
The SEC addressed a specific example with Canton Coin on November 3. Deputy Chief Counsel Jonathan A. Ingram wrote that, based on representations made by the project’s lawyers, Canton Coin is viewed as a digital commodity. The legal team stated the coin’s value comes from the operation of its network and market demand, not from managerial decisions or profit-sharing. They also said that no individual or collective has control over the system.
The Division is of the view that Canton Coin is a ‘digital commodity’.
Despite granting a no-action response regarding Canton Coin’s creation without securities registration, the SEC did not offer a blanket endorsement. The staff cautioned that future changes in circumstances could lead to a different outcome.
Ownership concentration and governance disputes
Identifying true control over a decentralized network can prove more complex than analyzing token distribution. A European Central Bank working paper reported that the top 100 holders owned over 80% of governance tokens in Aave, Ampleforth, MakerDAO, and Uniswap between 2022 and 2023. Protocol or exchange-affiliated addresses accounted for a majority of these holdings.
The research also found that many key voters remain unidentified, highlighting the opacity in governance. A 2026 Management Science study indicated that such concentrated control can correspond with slower platform growth, though additional factors may mitigate this effect.
Recent governance proposals illustrate these challenges. For example, ENS founder Nick Johnson held about half of active delegated votes despite owning around 3% of the total supply, prompting a proposal to delegate five million treasury tokens. Meanwhile, Compound token holders are considering measures to introduce treasury delays and add veto powers.
Given the ongoing governance disputes and frequent proposals, tools that offer real-time updates and targeted alerts can be especially valuable for those tracking major protocol decisions. CryptoAppsy enables users to set custom price and news alerts for specific coins, supporting timely awareness of governance-related developments in projects like Uniswap, ENS, or Compound.
Regulatory comparisons: SEC and FATF
In addition to the SEC, other international organizations are assessing who controls decentralized finance (DeFi) protocols. The Financial Action Task Force (FATF) took a different angle in its July 2026 report, calling for a risk-based evaluation of network control with a particular focus on anti-money laundering standards.
These two regulatory approaches reflect distinct priorities: the SEC seeks to determine securities classification, while FATF’s work addresses financial crime risks. Both, however, focus on the core question of where decision-making power resides in crypto networks and decentralized organizations.
