SEC Updates Token Classification FAQ: Adapts to DUNA Entities and Clarifies Issues Including Functional vs. Decentralized Boundaries

The U.S. Securities and Exchange Commission (SEC)’s Division of Corporation Finance updated its token-related Frequently Asked Questions (FAQs) on November 2, further clarifying the regulatory framework for tokens. Miles Jennings, General Counsel at a16z, posted on X highlighting key points: FAQ 1.4 explicitly states that decentralized governance systems may operate through legal entities such as DUNA; FAQ 1.5 distinguishes between permissioned and permissionless systems; and FAQ 1.6 clarifies the distinct meanings of “functional” versus “decentralized.” Notably, the official response to FAQ 1.4 emphasizes that, in a functional crypto system, participants who broadly engage in governance—and who are not affiliated with one another—typically do not constitute the “central group” of persons or entities referenced in the guidance, provided they have no formal or informal arrangements to act in concert beyond participating in that governance system. Even if such participants were deemed part of that central group, the relevant standard would only apply if they collectively exercise operational, economic, or investment control.