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SEC commissioner Hester Peirce proposes 3-year safe harbour provision for token projects

SEC Commissioner Hester Peirce wants to give crypto projects a three-year safe harbor allowing time for tokens to work towards passing the SEC’s securities evaluation processes.

Speaking at the International Blockchain Congress on February 6, SEC Commissioner Hester Peirce outlined details of a proposal that would provide crypto projects with a three-year safe harbor within which they could mature their token in order to successfully pass the SEC’s securities evaluation processes.

Key details

SEC Commissioner Hester Peirce has enjoyed good standing within the community due to her pro-crypto stance over her two-year stint at the regulator. Peirce has expressed her positive views on the potential of crypto assets on many different occasions, often sharing opinions opposed to those of SEC Chairman Jay Clayton.

In her most recent speech at the International Blockchain Congress in Chicago, Peirce revealed that she plans to officially table a proposal before the SEC in which she will recommend that crypto projects that conduct a token sale should have a three year grace period before they would be subject to evaluation under the SEC’s securities regulation.

In the past, the SEC has stated that most ICOs are actually securities and are therefore under the purview of the commission. Clayton has since softened this stance to exclude Ether (ETH). However, the authority has opened cases against a number of high profile token sales, citing securities law violations.

The proposal outlined by Peirce aims to provide new crypto projects holding a token sale with a grace period within which they could mature their network to achieve the level of decentralization necessary to successfully navigate regulations and cinch a passing mark with regard to securities laws. The grace period would be three years.

Peirce believes that this proposal better serves the sector as some tokens may seem to be securities at launch but morph into other financial devices with time. She stated: “The analysis of whether a token is offered or sold as a security is not static and does not strictly adhere to the digital asset.”

Peirce further expressed that existing securities regulation proved troublesome for fledgling crypto projects as it required energy to be directed at complying with the law as opposed to growing their platforms. The commissioner believes this is counter-intuitive stating: “The application of the federal securities laws to these transactions frustrates the network’s ability to achieve maturity and prevents the transformation of the token sold as a security to a non-security token functioning on the network.”

To be eligible for the safe harbor, crypto projects would need to disclose a number of details to the SEC. This is to ensure the public remains protected as the platform works to attain maturity.

Required details include the names and relevant experience, qualifications, attributes and skills of each team member, as well as how many tokens each member holds, and how many they may earn through founders’ rewards or similar programs.

Moreover, the source code of the project, its transaction history, and an explanation of how to independently examine transaction history, the token’s economics, a roadmap, and the history of past token sales must be made publicly available online. Lastly, the project must work to create secondary markets for the token.

The Industry responds

The response to the yet to be passed proposal has been overwhelmingly positive. Many industry leaders have expressed excitement over the opportunities for growth that the safe harbor would provide.

Katie Biber, General Counsel of institutional crypto custodian Anchorage, said, “We applaud SEC Commissioner Hester Peirce for her tireless devotion to solving complex problems while continuing to protect investors. The safe harbor framework is an important next step to help innovation thrive, and we welcome the clarity it could provide. We urge the Commission to move promptly to adopt it and to consider other innovative ways to increase investor choice in the digital asset space.”

Catherine Coley, CEO of U.S.-based digital asset marketplace Binance.US, added, “If adopted, the proposed safe harbor could be the most groundbreaking development for the U.S. cryptocurrency market to date. It’s encouraging to hear Commissioner Peirce acknowledge that adequate liquidity for secondary trading is important to the survival of a project.”


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