In a speech in Chicago on Thursday, Securities and Exchange Commissioner Hester Peirce aka “Crypto Mom” unveiled a proposal to create a regulatory safe harbor for decentralized token projects.
This would not only give project developers much needed clarity and breathing room but also meet the government’s need for investor protection.
Regulatory Safe Harbor – A Step in the Right Direction
The problem as long known has been with the nature of tokens and if they qualify as securities. Now Commissioner Peirce’s proposal addresses the uncertainty by giving them a three-year grace period from their first token sale.
The grace period gives the compliant developers time to build a functional and decentralized network to a point where the network is not reliant on their constant efforts and the tokens that may have the qualities of security before have matured to no longer being one.
This proposal isn’t just a “press exercise” but a “well-considered proposal that should be taken seriously,” said Jake Chervinsky, legal counsel at Compound Finance.
Chervinsky “fully support this concept,” as “the disclosures required to qualify for the safe harbor are much better tailored to digital tokens than the traditional regime. The language may need some tweaks, but overall this is a step in the right direction.”
Legitimate projects get a shot at success
In order to qualify for the safe harbor, the projects would also have to disclose information regarding personal to code and involving other factors. They would have to show that they are indeed building an open-source permissionless network.
“The safe harbor is also designed to protect token purchasers by requiring disclosures tailored to the needs of the purchasers and preserving the application of the anti-fraud provisions of the federal securities laws,” according to the notes detailing the proposal.
This proposal also means legitimate projects get a shot at success as “Scammers won’t bother trying to qualify for a safe harbor. Projects that comply would be more credible & transparent than the rest.”
It would be a win-win situation for everyone. While developers can fundraise knowing they can legally deliver to on a decentralized network, appropriate disclosures in interest of investor protection will assuage regulators’ concern to an extent and the public will benefit from the development of permissionless network more easily under regulatory oversight.
Though the road is long and there are still unanswered questions, it is “a positive step,” said Katherine Wu, founding team member of Messari and now at a VC role in Notation Capital.