The SEC just said governance voters are not automatically in control of a crypto network, yet Uniswap and Aave barely budged while Coinbase and Circle surged. The reason why reveals a gap between regulatory clarity and what markets actually care…
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Staff from the SEC’s Division of Corporation Finance stated in the updated SEC crypto FAQ on November 2nd that token holders participating in broad-based governance systems are generally not considered a “central party.” Despite this clarification, the governance tokens for Uniswap (CRYPTO:UNI) and Aave (CRYPTO:AAVE) have seen little market movement. Currently, UNI trades at $7.30, up 1.4% over 24 hours, while AAVE trades at $128, down 1.1%.
In contrast, listed cryptocurrency stocks have experienced more significant fluctuations. Coinbase Global (NASDAQ:COIN | COIN Price Prediction) has surged by 8% to $149 during midday trading, while Circle Internet Group (NYSE:CRCL) has risen by 4.7% to $75. However, neither Coinbase nor Circle has issued a statement on the SEC FAQ, making it difficult to attribute their gains directly to this development.
What the SEC Crypto FAQ Says About Token Votes and Control
In SEC terms, a “central party” refers to any person, entity, or group with operational, economic, or voting control over a cryptocurrency network. When buyers depend on a central party for profits, a token may be classified more like a security. Conversely, a network devoid of a central party resembles a digital commodity.
According to SEC staff, governance participants are typically not categorized as a “group of persons or entities” if they lack affiliations or agreements to act together outside the governance framework. Even if a voting group was formed, they would still need to exercise control over the network to be considered a central party.
The FAQ also outlines warning signs that could indicate central control. These include instances where a single party can independently grant or limit access, alter voting processes, modify code, or reverse transactions.
These latest clarifications build on updates from September, including new FAQs released on September 25 and a revision of the buyback answer, FAQ 2.5, on September 28, detailing functional systems without a central party. Thus, any comfort regarding buybacks hinges on meeting the no-central-party criteria specified in the latest answers. However, these guidelines reflect staff views and carry no legal authority; the SEC has neither endorsed nor rejected them, and the FAQ does not identify any specific projects.
Uniswap and Aave Fit the SEC Framework, but Their Labs Companies Complicate It
UNI token holders vote on protocol changes, and Uniswap’s governance documentation states that protocol fees are used exclusively to permanently burn UNI tokens, effectively removing them from circulation. The decision by spread-out voters to activate those fees aligns well with the SEC staff’s framework. However, Uniswap Labs, a private company that builds on the protocol, raises questions about whether one entity might wield control.
Similarly, the Aave DAO, which is the group of token holders managing the Aave protocol, approved a buyback program funded by protocol revenue. However, a subsequent governance proposal paused buybacks as of April 19. The DAO also declined a proposal asking Aave Labs to relinquish certain brand assets, suggesting a private company still retains influence within the ecosystem.
Coinbase and Circle Stocks Rallied for Reasons Beyond the SEC FAQ
Coinbase earns trading fees on governance tokens, but its third-quarter earnings report showed revenue dropping to $1.2 billion, down 35% from the previous year, and token listings move that revenue only at the edges.
In a statement from October 29, Coinbase’s CEO Brian Armstrong described the SEC and the Commodity Futures Trading Commission (CFTC) as “very forward-thinking and collaborative.” However, Coinbase’s recent stock surge appears largely a bounce-back, as the stock had previously fallen 18.7% over the month, with Morgan Stanley advising investors to avoid the stock on November 2.
Circle, on the other hand, reported an average of $76.5 billion in circulation for its USDC stablecoin during the second quarter. USDC is a key settlement instrument for transactions on Uniswap and Aave, and an overall healthier DeFi market indirectly benefits Circle. However, because Circle has no governance token, the SEC FAQ’s impact on its business is minimal.
Does the SEC Crypto FAQ Make UNI and AAVE Safer Investments?
The new guidance slightly alters the legal landscape, but its impact on prices is less clear. Both DAOs now have a better understanding of the expectations set forth by the SEC, although the FAQ does not officially endorse either token. Furthermore, staff could revise the FAQ without a Commission vote, maintaining an element of uncertainty.
The muted market reaction suggests that the FAQ is being interpreted more as administrative clarification than a significant policy shift, particularly since it elaborates on the SEC’s March 17 release without establishing voting thresholds. Both protocols also incorporate delegated voting, meaning that large delegates coordinating outside of the governance framework could still be treated as a unified group.
Ultimately, token prices provide the clearest indicator of investor sentiment. If UNI surpasses its 50-day moving average of $7.91—about 8% higher—and AAVE exceeds its 50-day average of $150—about 18% higher—by November 30, it would imply investors view the FAQ as a meaningful change. Conversely, if both tokens remain below these levels, it likely indicates the market sees this as bureaucratic formality.
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Sam Daodu is a crypto analyst and the editor of 24/7 Wall St.'s Crypto Desk, where he covers Bitcoin, XRP, Ethereum, Solana and the altcoins investors search for most. His work focuses on price levels, spot ETF flows, on-chain data and the regulatory decisions that move crypto markets, written so a first-time buyer and a seasoned trader can both use it.
Sam has written about crypto professionally since 2019 and has published more than 2,000 articles. Before joining 24/7 Wall St., he wrote for crypto media outlets and Web3 companies and ghostwrote for crypto founders and token launches. His analysis is syndicated on Yahoo Finance, MSN and AOL and has been cited by other crypto news sites. He also founded MacLabs Marketing, a content and personal branding agency for crypto founders and executives.
When he isn't reading charts, Sam is usually at the gym or watching One Piece, a series he maintains has better tokenomics than most altcoins.
