The U.S. Securities and Exchange Commission’s Division of Corporation Finance added guidance dated Nov. 2 saying unaffiliated participants in broad-based crypto governance generally do not form a “central party” if they have no separate agreement, arrangement or understanding to act together.

The three new answers—1.4, 1.5 and 1.6—in the division’s updated crypto FAQs explain how shared governance fits the SEC’s digital-commodity framework. For token projects and decentralized autonomous organizations, or DAOs, the distinction turns on who actually controls the system, including through delegated votes.

The SEC’s March 17 interpretive release says digital commodities are not themselves securities and describes a functional crypto system as having no central party that oversees participation or distributes rewards. It defines a central party as a person, entity or group with operational, economic or voting control.

The new answers are staff views, not Commission rules or a Commission statement. The FAQs say they have “no legal force or effect,” do not amend applicable law and create no new obligations. The Commission has neither approved nor disapproved their content.

Independent Participation Versus Coordinated Control

Answer 1.4 says governance participants generally will not be treated as a group if they are unaffiliated and have no formal or informal arrangement to act in concert, including through delegation, separate from participation in the governance system itself. Even if participants constitute a group, they must have operational, economic or voting control to qualify as a central party.

The staff defines broad-based governance as transparent and rules-based, with a wide and diverse set of stakeholders contributing independently. Decision-making authority cannot be concentrated, directly or through delegation, in one stakeholder or affiliated or coordinated stakeholders.

The same treatment applies when governance sits within an organization, association or foundation and participation depends on holding the system’s native token. But a foundation can itself be a central party over another crypto system—for example, an application whose operating parameters it sets.

Answer 1.5 identifies powers that amount to overseeing participation: unilateral authority to grant or limit access, change voting processes for upgrades or token distributions, control who validates transactions, modify the system’s code, reverse transactions or revoke access.

By contrast, a central party generally does not oversee participation when every material aspect of ongoing operation runs automatically under rules-based code without human discretion. The same applies when any material discretion is exercised solely through broad-based governance whose participants are not a central party.

Answer 1.6 distinguishes functionality from decentralization. A functional system lets its native asset serve its programmed use; a decentralized system operates autonomously without a person or group exercising operational, economic or voting control. A functional system associated with a digital commodity has characteristics of decentralization, the staff says, but the degree can vary.

Building on September’s Guidance

The FAQs were originally issued Sept. 25 and revised Sept. 28. The earlier version already said that services to secure, maintain or improve a functional system, including funding development, would not involve essential managerial efforts. The Sept. 28 revision also conditioned its favorable treatment of token-buyback announcements on the system having no central party.

The November additions provide detail on that control test rather than replacing the March framework. Whether an issuer has fulfilled promises to undertake essential managerial efforts remains a separate question: answer 1.1 says that assessment depends on the issuer’s own stated thresholds for functionality or decentralization.

The staff also limits answer 1.4 to digital-commodity classification. Its treatment of governance participants as a group does not apply to other Securities Act or Exchange Act provisions, including the definition of an exchange.