SEC Staff Clarify That Unaffiliated Governance Voters Do Not Form a Controlling Group

Staff within the Securities and Exchange Commission's Division of Corporation Finance issued guidance clarifying that token holders who cast votes in a network's governance system generally do not constitute a controlling "group" under the agency's digital commodity framework ¹. The update, published on Nov. 2 as three additions to the staff crypto FAQ, elaborates on criteria established in the regulator's March 17 Interpretive Release, which determined that digital commodities operating without a centralized controlling party are not securities ¹.

Under newly added Question 1.4, governance participants are not viewed as a group provided they are unaffiliated and have no formal or informal arrangement to coordinate actions, even via delegation mechanisms ¹. The staff noted this standard applies when a governance structure operates within an associated foundation and token holders exercise voting rights natively ¹. However, footnotes specify that the governance process must remain transparent, rules-based, and broadly diversified, warning that a foundation itself could qualify as a central party if it retains authority over secondary systems, such as application parameters ¹.

Unilateral Authority and Decentralization Limits

Question 1.5 outlines specific behaviors indicating centralized oversight, highlighting unilateral powers to restrict participation, adjust consensus validators, modify code, or alter voting rules ¹. Such unilateral authority does not trigger central-party status if discretion operates solely through a diversified governance structure lacking a controlling bloc ¹. Meanwhile, Question 1.6 distinguishes functionality from decentralization, observing that a functional crypto network supporting a native digital commodity shares traits with decentralization but requires independent analysis ¹. The Hyperliquid Policy Center previously cautioned in an Oct. 19 comment letter that an ambiguous definition of "group" risked categorizing any project issuing governance tokens under central-party restrictions ¹.

The staff explicitly noted that these FAQ responses reflect staff interpretations, carry no statutory legal force, and have not been formally approved or disapproved by the Commission ¹. Market participants must evaluate decentralization on an individual facts-and-circumstances basis, as the guidance names no specific tokens or decentralized organizations ¹.