SEC updates crypto framework to clarify decentralized governance

The new entries, numbered 1.4 through 1.6, refine the agency’s March interpretation of federal securities regulation. The staff clarifies that participating in governance via an organization or foundation does not automatically categorize participants as a controlling group. According to the SEC, such groups only trigger central-party status if participants are affiliated or maintain specific agreements to act in concert outside of formal governance procedures. Even where a group exists, they must demonstrate operational, economic, or voting control to meet the agency's criteria for a central party.

Regarding network oversight, the staff identifies unilateral powers—such as the ability to modify code, reverse transactions, or unilaterally restrict access—as indicators of centralized control. Systems where operations run automatically via rules-based code, free from human discretion, are positioned as the alternative. The guidance distinguishes this operational autonomy from mere token functionality; a network may perform its intended utility while remaining under human control. Legal experts, including Miles Jennings, noted that the update provides a pathway for utilizing legal entities like DUNAs without necessarily undermining a project’s decentralized status.

These additions carry no formal legal weight, serving instead as an expression of staff views rather than binding legislation. Skeptics, including Avi Lev, have pointed out that the guidance remains subject to change by future commissions, keeping the pressure on Congress to formalize a statutory market structure through bills such as the CLARITY Act.