Key highlights:
- The SEC staff won’t pursue enforcement action for certain programmatic minting of Canton Coin, even if companies don’t register under specific securities laws.
- This decision follows a request filed on October 30 on behalf of Digital Asset Holdings, which developed the Canton protocol.
- The decision relied on specific details about how the token connects to network activity, supply and demand, and Canton’s governance.
- The position is limited to the facts submitted and does not create a general exemption for other crypto tokens or transactions.
The U.S. Securities and Exchange Commission’s Division of Corporation Finance has issued a no-action response concerning the minting of Canton Coin, the Canton blockchain network’s native token. In a response dated November 3, the staff said they would not recommend enforcement action against Super Validators, Validators, and application providers for minting the token as described, even if those participants don’t register under Section 5 of the Securities Act or Section 12(g) of the Exchange Act.
The SEC staff explained that, given the facts, Canton Coin qualifies as a digital commodity under the agency’s crypto-asset framework, relying on the representations and legal opinions provided. There’s no set expiration for this guidance, but if circumstances change, the position could too. This is just an enforcement stance, not an official legal finding.
SEC’s No-Action Response Covers Programmatic Canton Coin Minting
The SEC’s Office of Chief Counsel stated it would not recommend enforcement action if Super Validators, Validators, and app providers mint Canton Coin as described. This is important because the decision doesn’t automatically apply to other projects.
The SEC staff pointed out two things: First, Canton Coin’s value is tied to the network’s operations and to supply and demand, not to profits from someone else’s management. Second, Canton doesn’t have a central party as defined by the SEC.
How Canton Coin Works
Canton is a blockchain focused on privacy and designed for financial applications. Its token is used to pay fees for the Global Synchronizer, which helps coordinate transactions across the network. According to Digital Asset’s request, when tokens are used for fees, they get burned, and network operators or application providers mint new tokens as the network sees activity.
Digital Asset said that Canton was already functional when the token launched, and there was no initial coin offering (ICO), pre-mine, or pre-launch token distribution.
According to the SEC’s March interpretation, digital commodities must be tied to a working crypto system and get their value from supply and demand. This category doesn’t include assets that come with economic rights, like passive income or claims on a company’s profits or assets.
Governance Structure Plays an Important Role in SEC Assessment
Canton’s governance also played a role in the SEC’s decision. To operate a mainnet node, validators need approval from the Canton Foundation’s Tokenomics Committee and a Super Validator sponsor. Protocol changes need at least two-thirds approval from the Super Validator Node Operators. Neither Digital Asset nor the Canton Foundation can change the protocol rules on their own.
The SEC staff’s FAQs, updated November 2, explain that wide-ranging governance can mean there’s no central party. FAQ 1.4 says that unrelated participants in a broad governance system are not considered a group if there’s no separate agreement to act together. FAQ 1.5 explains that just using governance power doesn’t make someone a central party, as long as those involved aren’t acting as one. FAQ 1.6 explains the difference between a functional system and one that is truly decentralized and autonomous. FAQ 2.3, which the request cited, states that keeping a network running and improving it after it becomes functional doesn’t count as essential managerial effort under the Howey test.
What the Guidance Means for Other Networks
The SEC’s FAQs are just staff guidance and the no-action response only applies to Digital Asset’s specific situation. Other blockchain projects need to analyze their own tokens, network design, and who holds power over decision-making.
The SEC’s March interpretation also notes there’s a difference between the token itself and how it is offered or sold. A token that isn’t a security on its own might still be sold in a way that creates an investment contract which brings it under securities law. This distinction matters for Canton Coin and for other crypto projects too.
