The SEC further clarifies regulatory standards for crypto assets, sending a new signal for decentralized projects.
On November 2, according to a notice on the SEC Division of Corporation Finance website, the division updated its FAQ on the application of federal securities laws to crypto assets, adding three Q&As focused on central control parties, supervisory participation rights, and system functionality.
There are three notable points in this update:
Participants in a broad governance system who are not affiliated with one another and do not act in concert through an agreement, understanding, or delegation will generally not be considered a central control party.
Central-party supervisory participation hinges on whether a party has the unilateral power to control access, modify voting procedures, adjust the rules in code, or reverse transactions. This is generally not the case when material operations are executed automatically by code or when discretion is exercised by a broad governance system.
Functionality and decentralization are two distinct concepts; a system's functionality does not, by itself, mean that it is decentralized.
The update signals that the SEC is further refining how it determines actual control over crypto projects, with the focus increasingly on who can truly control a protocol, modify its rules, and intervene in transactions.
For DeFi, public blockchain, and DAO governance projects, this could affect future compliance design and assessments of whether an asset is a security.
However, it is important to note that this FAQ represents only the views of SEC staff and does not have the force of a rule or regulation. It is related to the interpretive release issued earlier on March 17 and the proposed “Crypto Asset Regulatory Framework” published on August 18.
Regulatory boundaries are being clarified gradually, but this does not mean that all decentralized tokens are automatically exempt from securities laws.
On November 2, according to a notice on the SEC Division of Corporation Finance website, the division updated its FAQ on the application of federal securities laws to crypto assets, adding three Q&As focused on central control parties, supervisory participation rights, and system functionality.
There are three notable points in this update:
Participants in a broad governance system who are not affiliated with one another and do not act in concert through an agreement, understanding, or delegation will generally not be considered a central control party.
Central-party supervisory participation hinges on whether a party has the unilateral power to control access, modify voting procedures, adjust the rules in code, or reverse transactions. This is generally not the case when material operations are executed automatically by code or when discretion is exercised by a broad governance system.
Functionality and decentralization are two distinct concepts; a system's functionality does not, by itself, mean that it is decentralized.
The update signals that the SEC is further refining how it determines actual control over crypto projects, with the focus increasingly on who can truly control a protocol, modify its rules, and intervene in transactions.
For DeFi, public blockchain, and DAO governance projects, this could affect future compliance design and assessments of whether an asset is a security.
However, it is important to note that this FAQ represents only the views of SEC staff and does not have the force of a rule or regulation. It is related to the interpretive release issued earlier on March 17 and the proposed “Crypto Asset Regulatory Framework” published on August 18.
Regulatory boundaries are being clarified gradually, but this does not mean that all decentralized tokens are automatically exempt from securities laws.