SEC staff add 3 answers on when a crypto network counts as decentralized. What it means for you

The SEC's staff have published three new answers on a question that decides a lot in crypto regulation: when is a blockchain network run by its community rather than by a company in control? The answers don't change any law and don't touch your wallet. Here's what they say and why they matter.

What happened

On November 2, 2026, the SEC's Division of Corporation Finance updated its crypto FAQ page, first issued on September 25, with questions 1.4, 1.5 and 1.6. crypto.news reported the update the same day.

The answers build on the interpretation the SEC issued on March 17, 2026, which the CFTC joined. That interpretation sorts tokens into five groups: "digital commodities, digital collectibles, digital tools, stablecoins, and digital securities." Only the last group are themselves securities, though a non-security token can still be sold as part of an investment contract, which securities law does cover. A digital commodity, in the SEC's wording, is tied to a "functional crypto system" with no "central party," meaning no person, company or group with operational, economic or voting control of the network.

So the key question for many tokens is who, if anyone, is in control. The three new answers tackle that.

The three new answers, in plain English

• Q1.4, voting together isn't automatically control. Staff say whether governance participants form a "group" depends on the facts and circumstances. But token holders and others who take part in a network's broad-based governance system generally won't count as a "group" as long as they aren't affiliated and have no agreement, arrangement or understanding, formal or informal and including through delegation, to act together outside the governance system itself. That holds even when the voting runs through a foundation or association and depends on holding the network's token. Staff add that even a group would still need actual control to count as a central party. A footnote says this only covers the token-classification question, not other parts of securities law such as the definition of an exchange.
• Q1.5, what "overseeing participation" means. A central party oversees a network when it can control access at any level. Staff give examples: it alone can grant or limit access, set or change how upgrades, protocol changes or token distributions are voted on, pick who validates transactions, or modify the code, reverse transactions or revoke access. That generally isn't the case when every material part of the network runs automatically under rules-based code with no one's discretion, or when any discretion is used only through broad-based governance whose participants aren't themselves a central party.
• Q1.6, working isn't the same as decentralized. "Functional" means the token can be used on the network as designed. "Decentralized" means the network runs on its own with no one in control. Staff say a functional network with a digital commodity has signs of decentralization, but how much depends on the facts.

The FAQ also sets a bar for "broad-based" governance: it should be transparent, follow pre-set, objective procedures that no single stakeholder or coordinated group can change except through those procedures, and draw on a wide and diverse group of stakeholders of several types, such as developers, validators and token holders, without decision-making power concentrated in affiliated or coordinated stakeholders, including through delegation. It notes that a foundation could itself be a central party if it controls another network, for example by setting the operating rules for apps built on it.

What it isn't

The SEC's own page says these answers are staff views. They aren't a rule or a Commission statement, the Commission hasn't approved or disapproved them, and they have "no legal force or effect." Because they're staff views rather than law, a future SEC could revise them, and they don't bind courts.

They also aren't a law. Congress hasn't passed the CLARITY Act, the market-structure bill. When the SEC issued its March interpretation, it said the move complements Congress's work on a market-structure law. Journalist Eleanor Terrett described the new answers as an effort to address some of the decentralization questions CLARITY would settle in law.

What this means for you

• Your holdings: nothing changes. No token was approved, banned or reclassified by this update.
• Governance tokens: if you vote with a token, the staff view is that unaffiliated holders taking part in a broad-based governance system, without side agreements to act together, generally don't count as a controlling group. Whether a particular network qualifies still depends on the facts.
• Project marketing: expect some projects to cite this FAQ when they call their token "decentralized." That's their claim, not an SEC finding about them.
• Know where it fits: our US crypto laws guide lays out which rules are laws, which are agency positions and which are only proposals.

The takeaway

SEC staff have spelled out how they judge whether a crypto network's community, rather than a company, is in charge. It's useful context for how US regulators now sort tokens, but it's guidance that can change, not law. This is education, not financial or legal advice, and it reflects the SEC's FAQ page as updated on November 2, 2026.

Published November 2, 2026 by Dave McNaught. Educational content, not financial, legal or tax advice. Spot an error? Request a correction.

About the author

Dave McNaught

Dave McNaught has worked in IT since 1999 and founded All Business Technologies (ABT) in 2003, a Boston-area firm providing Managed IT, Cybersecurity, Managed AI, Web Design and App Development. He publishes The Crypto Guide.

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