Token Votes No Longer Equal Control: SEC Draws the Decentralization Line in Three FAQs

The administrative path takes another step after CLARITY’s defeat: the SEC uses staff Q&As to pin “centralized person” down to actual control, while New Jersey drops its Coinbase staking lawsuit on the same day. The question of who runs a network is being redrawn.

Three FAQs: From Identity to Actual Control of the “Centralized Person”

On November 2, the SEC’s Division of Corporation Finance updated its crypto asset FAQ on the agency’s website, adding three questions numbered 1.4 through 1.6 that focus on the boundaries of crypto asset classification. The update supplements the joint interpretive release issued by the SEC and CFTC on March 17, 2026 (Release No. 33-11412). That document introduced a five-category token taxonomy (digital commodities, digital collectibles, digital tools, payment stablecoins and digital securities) and made “no centralized person with operational, economic or decision-making control” a precondition for a token to qualify as a non-security digital commodity.

Question 1.4 addresses whether governance participation makes someone a centralized person: participants in a broad-based governance structure, if they are not affiliated with each other and have no agreements, arrangements or understandings to act together, generally would not be considered a centralized person. The same conclusion holds even when the governance structure sits inside an organization, association or foundation. The inverse case is explicitly excluded: if an organization can control another network, it may still be deemed a centralized person. This separates “collective governance” from “single control,” effectively acknowledging that multi-stakeholder co-governance is not itself a problem. The problem is the existence of coordinated control arrangements.

Question 1.5 defines what counts as “supervisory involvement”: only when a single person has the power to control access to a crypto system at the protocol, validator or user level (for example, unilaterally admitting or restricting access, deciding or changing the voting process for software upgrades, managing consensus participants or revoking transactions) does it constitute supervisory participation. Conversely, if operations are executed automatically by code or decided through governance mechanisms that are not controlled by a centralized person, they fall outside this definition. In short, the SEC cares about “who can change the rules or block others at their own will,” not “who has ever voted.”

Question 1.6 clarifies that “functional” and “decentralized” are two different concepts: functional means a token is used for its intended purpose, while decentralized means no single person controls network operations. Functional digital commodity networks often exhibit decentralization, but the degree varies by network. This implies that “a token that works” is not the same as “a decentralized token”; the actual control structure of a network must be assessed separately. The FAQ also notes that “broad-based governance” should meet three criteria: transparent processes, rule-based operation and distributed power.

It should be noted that the FAQ reflects only SEC staff views, carries no legal force and is not formal rulemaking. Still, its practical significance is considerable. With the CLARITY Act stalled and the administrative path in charge, the 16 digital commodities named in the March 17 joint interpretation (BTC, ETH, XRP, DOGE, SOL, ADA, APT, AVAX, HBAR, LTC, DOT, SHIB, XLM, XTZ, LINK, with ALGO and LBC in a footnote) depend for their continued classification on the “no centralized person” precondition. This FAQ gives governance-structure assessment a more operational analytical framework.

The Second Shoe the Same Day: New Jersey Drops Its Coinbase Staking Lawsuit

On the same day, New Jersey formally withdrew its lawsuit against Coinbase’s staking business and lifted the cease-and-desist order it had previously issued. Coinbase legal team member Molly Abraham confirmed the development on X, naming Wisconsin, Maryland, California and Washington as the next targets. Coinbase CEO Brian Armstrong reposted, saying New Jersey users would soon be able to rejoin staking.

The regulatory fight over staking goes back years. In February 2023, the SEC settled with exchange Kraken, forcing it to stop offering staking to U.S. users and pay a $30 million penalty; the SEC argued at the time that staking constituted an unregistered securities offering. Coinbase, by contrast, has always insisted that staking is not a security, and fought the SEC head-on starting in 2023. New Jersey’s prior cease-and-desist order on Coinbase staking has now been withdrawn and lifted, an acknowledgment at the state level that staking services can return.

The timing is telling. The March 17, 2026 joint interpretive release stated that certain foundational blockchain activities, including protocol mining and staking, do not involve the offer or sale of securities. New Jersey’s withdrawal directly tracks the implementation of that administrative position. And the SEC’s Division of Corporation Finance FAQ update the same day provides an interpretative framework for digital commodity classification from the governance angle. Together, the two events send a coherent signal: from staking to governance structures, the SEC is systematizing the “not a security” standard, and state regulators are following.

Implications for Practitioners