Cryptomom Suggests Safe Harbor for Token Projects

Safe Harbor for Token Projects

Hester Peirce, –United States Securities and Exchange Commission (SEC) Commissioner formally presented a regulatory vision that would set up a safe harbor for token projects that with the aim of funds’ raising to build decentralized networks, after initially presenting the idea in August 2019.

Peirce, also known as SEC’s “Crypto Mom,” presented her token safe haven proposition during the International Blockchain Congress in Chicago. The plan would allow a three-year grace period for network developers to build a decentralized network without facing legal action by the SEC.

Within that time, developers would be “unrestrained by the federal securities law registration requirements as long as the terms are met,” Peirce’s proposal suggests.

Three-Year Grace Period to Build Decentralized Network

In other words, the three grace period provides compliant developers with time to create a decentralized network and recruit participants before they become a target of the SEC’s strict regulatory procedures. Nevertheless, developers would also have to show they are actively developing an open source network and offering appropriate documentation to apply for this exemption.

Token projects would be still subject to a number of SEC’s requirements .

As such, the initial development team would ensure that token transactions would not be debt transactions at the end of a three-year cycle as the network matures into a “decentralized or running network on which the token is in active use.”

But, the proposal also proposes a multitude of important public disclosures such as source code data, transactions, information on how tokens are produced or extracted, as well as explanations of burning tokens, transaction validation and frameworks for governance.

At the same time, the proposed safe harbor would not be eligible for ventures already excluded as a bad actor under the securities laws, Peirce stressed. The commissioner also noted that the safe harbor would still be reserving the SEC’s anti-fraud jurisdiction for token transactions under the safe harbor. Peirce’s comments read:

“Although the safe harbor would preempt state securities laws, it would not stand in the way of state anti fraud actions. If anyone lied in connection with selling tokens pursuant to the safe harbor, the SEC or a state could bring an enforcement action […] We all know that there are plenty of those kinds of “projects” polluting the crypto space.” 

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