What the SEC FAQ Actually Says
The FAQ behind the study comes from the SEC’s Division of Corporation Finance and describes factors its staff may weigh when judging whether a network is controlled by a central authority. Restricting participation in the network, selecting validators unilaterally or changing protocol rules at one entity’s discretion can each count as central control, while decision mechanisms that rest on a broad, independent participant base point the other way. The document also separates a functional network from a decentralized one: functionality means the network’s crypto asset can actually be used for its designed purpose, whereas decentralization turns on whether operational and economic control stays out of a single pair of hands. The SEC adds, in the same text, that the FAQ is not new regulation adopted by the Commission and produces no legally binding result.
Mougayar applied those statements through five assessment areas, one of which the $XRP Ledger could not enter: it has no native Proof of Stake layer, so the staking-receipt area was excluded and its average was computed over four areas. On Solana, the 8.8 reflects a shift toward multiple validator software clients, including the Firedancer alternative, weighed against past operational outages and reliance on specific infrastructure. $XRP Ledger’s 8.1 credits the ledger’s operational separation from Ripple while deducting for the company’s large escrow holdings of $XRP, read as economic control. Canton Network’s 5.1 follows from permissioned validator access and permissioned governance, which fit the decentralization criteria only narrowly. None of these figures amounts to a securities classification; the researcher presents them as an alignment read, nothing more.
Whose Criteria Carry Weight
The dispute turns on who holds the pen. Mougayar uses the SEC’s staff criteria as a measuring stick, yet the same SEC document says the stick is not a rule, so a 9.7 creates no legal classification for Ethereum ($ETH) and a 5.1 dooms nothing. The method also cuts both ways: because $XRP‘s average rests on four areas rather than five, the numbers are not strictly comparable across networks. Decentralization has stopped being a purely technical property and has become a regulatory one, a thread running through our Ethereum coverage this quarter. What would give such scores real weight is a final Commission rule adopting these factors, and none exists today. The decision on what decentralization legally means stays with the SEC, which has so far declined to make it.
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