Is it really a good thing that tokens are not classified as securities?
Written by Eric, Foresight News
The U.S. Securities and Exchange Commission (SEC) updated its frequently asked questions (FAQs) on the application of federal securities laws to "governance tokens" on November 2, 2026, Beijing Time, adding three new responses covering governance participation, network control, and decentralization standards.
This update directly addresses a core question that has surrounded governance tokens for years: does vesting voting rights in a large base of holders create a "control group" in the eyes of regulators, thereby affecting the determination of whether a token is classified as a security or a digital commodity?
This clarification builds on an interpretive statement released by the SEC on March 17, 2026, which sought to provide a framework for crypto asset classification, distinguishing between centralized and decentralized systems, and introducing the concept of a "central party" — defined as an individual, entity, or group that holds operational, economic, or voting control over a crypto system.
A Finding of "Centralization" Requires the Existence of "Unilateral" Power
To avoid a token being categorized as a "security", a project must prove that no so-called "central party" exists within its protocol ecosystem. For projects that adopt DAO governance, the practice of holders using token votes to decide protocol parameters, fund allocation, or upgrade proposals has long been viewed by regulators as potential evidence of collective control. If thousands of holders are collectively regarded as a coordinated acting group, the system will struggle to meet decentralization standards, and its governance tokens will be far more likely to fall under the jurisdiction of securities laws.
The November 2 updated FAQ draws a relatively clear line on this point. SEC staff noted that token holders participating in crypto ecosystem governance will generally not be deemed to constitute a "group" as defined under the central party framework, provided they have no affiliation with one another, and have no separate agreement, arrangement, or consensus (including via delegation) to act in concert. Even if they are found to be a group under certain factual scenarios, they must still actually hold operational, economic, or voting control to meet the definition of a central party.
The FAQ further clarifies that a central party refers to an entity with the ability to unilaterally control access, alter voting procedures, select validators, modify code, reverse transactions, or restrict access at the protocol layer, validator layer, or user layer. However, the drafters of these explanations explicitly noted that they represent only the views of SEC staff, not the rules or positions of the full Commission; they have no legal binding force, and do not create new obligations for regulated entities.
Web3 Projects Need to "Distribute Voting Power as Widely as Possible"
Uniswap has emerged as a typical case in relevant discussions. UNI holders can vote on matters such as protocol fee parameters and treasury allocations via on-chain governance. The SEC noted that wide-reaching governance, even if operated via a foundation or association, does not automatically mean participants constitute a control group, providing a degree of interpretive flexibility for projects that adopt similar legal wrapper structures.
That said, the FAQ does not name any specific project, nor does it declare that UNI or any other token automatically qualifies as a digital commodity. Project teams still need to prove that voting rights are widely distributed, and that no small cohort of stakeholders has the ability to unilaterally modify rules, restrict access, or overturn governance resolutions.
This update comes against a backdrop of stalled legislative progress: the CLARITY Act, which was designed to clarify the division of regulatory authority over crypto assets, narrowly failed in the Senate in September 2026 by a vote of 49 to 50. In the weeks following the failed vote, the SEC has continuously provided classification guidance through staff FAQs and other documents, while the next steps for congressional legislation will depend on the composition of the new Congress following the midterm elections. Staff guidance has filled part of the regulatory gap, but has also sparked debate about the tendency of administrative agencies to proactively shape rule boundaries when legislative processes stall.
For Web3 and DAO organizations, this clarification reduces a specific source of regulatory uncertainty facing governance tokens. For projects with genuinely distributed voting rights and no implicit coordination agreements, collective voting itself is unlikely to be directly used as evidence to negate a project's decentralization status. Exchanges, market makers, and institutional investors evaluating related tokens may have a more actionable reference framework to work from, which could reduce the overly conservative positions they often adopt due to regulatory ambiguity.
When designing governance mechanisms, DAO projects are likely to place greater emphasis on documenting the wide distribution of voting rights, ensuring transparency of proposal and execution processes, and preventing any single entity or affiliated group from holding unilateral veto or modification powers. Projects experimenting with legal structures such as DUNA may also gain clearer reference language to use in future compliance communications.
Some Applaud the Update, While Others Dismiss It as "Correct but Empty Rhetoric"
Reactions to the update on X are sharply divided. Miles Jennings of a16z described the update as a helpful clarification, noting that it further refines the token classification framework and demonstrates that systems can use legal entities such as DUNA while maintaining decentralized governance. Some users view the update as a positive signal for DeFi and DAOs, arguing that it addresses longstanding uncertainties faced by projects like Uniswap, and may provide a more predictable regulatory reference for open governance models.
Other voices highlight the update's limitations, pointing out that it is only guidance released by SEC staff, has no legal binding force, and does not make a classification determination for any specific token. Some commentators note that with the failure of the CLARITY Act, SEC staff's continuous efforts to advance interpretive guidance through FAQs provide short-term clarity, but also highlight the agency-led regulatory dynamic that emerges when legislative gaps remain. Some discussions also note that the guidance's judgments of "coordinated action" and "wide distribution" are still dependent on specific factual scenarios, leaving considerable room for interpretation in practice.
To take the simplest example: delegating tokens to one's own staking operator is, at least under the current guidance, a highly complex relationship, for which there are no clear precedents or legal provisions to determine whether it meets the threshold for "decentralization".
Overall, this FAQ update provides a more granular reference point for the classification analysis of governance tokens, especially in distinguishing between independent voting and collective control. It helps reduce a portion of regulatory concerns about DAO governance mechanisms, and provides citable language for project teams to use in structural design and external communications. However, given its non-binding nature and the requirement for case-by-case judgment, it does not eliminate all uncertainty. As Web3 projects advance their decentralized governance models, they still need to continuously monitor the actual distribution of voting rights, the potential for unilateral exercise of control, and further evolution of the legislative and enforcement environment.