Over the past two years, the U.S. Securities and Exchange Commission (SEC) has shown it’s willing to flex its muscles against cryptocurrency token sales it perceives as unregistered securities offerings. Yet one official in the Commission’s leadership wants to make such flexing less common.
That official is SEC Commissioner Hester Peirce, who during a February 6th presentation at the International Blockchain Congress in Chicago revealed she had created a formal proposal to enact “safe harbor” rules for token projects in the U.S.
During her new remarks, Commissioner Peirce specifically called for the creation of a three-year grace period during which enterprises could sell tokens without being subject to the SEC’s unregistered securities rules.
A Pathway to Maturity and Liquidity
Notably, Commissioner Peirce argued that “whether a token is offered or sold as a security is not static.”
For example, the SEC has determined last year that over time EOS evolved from an unregistered securities offering into a sufficiently decentralized cryptocurrency.
As such, the commissioner proposed that token enterprises should be given a grace window to allow an “initial development team” to achieve not only network maturity but also liquidity:
“Admittedly, the liquidity condition may surprise observers of SEC staff positions in which attempts to facilitate secondary trading have been viewed as indicia of a securities offering. In the context of the safe harbor, by contrast, secondary trading is recognized as necessary both to get tokens into the hands of people that will use them and offer developers and people who provide services on the network a way to exchange their tokens for fiat or cryptocurrency.”
As Commissioner Peirce envisions it, a safe harbor system in the U.S. wouldn’t mean open season for low-quality or bad faith projects to materialize, insofar as offenders would be barred from the protections.
“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,”
Naturally, the projects that stand to gain the most from this kind of safe harbor system are ones that haven’t yet launched.
In other words, safe harbor rules wouldn’t help other projects like EOS unwind the SEC interactions they’ve already endured. However, such regulation would undoubtedly make projects more comfortable launching decentralized tokens offerings on a platform like Ethereum.
And speaking of Ethereum, it’s a particularly interesting project to consider here with regard to the status or non-status of its native asset, ether, as a security.
At this point the SEC doesn’t view ETH as a security, that much is known. Yet it’s clear that element’s of the Commission’s leadership believe a cryptocurrency’s security status can fluctuate, which has interesting implications for Ethereum 2.0.
Last fall Heath Tarbert, the Chairman of the U.S. Commodity Futures Trading Commission, said that the CFTC was exploring whether ether would remain as a commodity under U.S. law upon the transition to the Ethereum 2.0 blockchain scheduled to begin this year.
“That’s exactly the kind of analysis that that we’re undertaking and the SEC is undertaking right now,” Tarbert noted.
That seemed like a frank admission of the realm of possibilities rather than a hint at any sort of impending regulatory clamp down. Even still, hypothetically consider if Commissioner Peirce did get a safe harbor instituted in short order. In that case, ETH 2.0 would have legal cover regardless of what the big U.S. financial regulators thought at the time.
Alas, with her latest proposal Commissioner Peirce, or “Crypto Mom” as some call her, has further entrenched herself as a mainstream darling for many cryptoeconomy stakeholders.