SEC’s Hester Proposes Safe Harbor for Decentralized Networks

 

 

 

 

 

On Thursday, Securities and Exchange commissioner Hester Peirce revealed a proposal to provide qualifying decentralized network developers a three-year safe harbor from some SEC regulations, CoinCenter reports. The proposal is designed to allow digital token projects time to evolve without running afoul of regulators’ concerns about the registration and trading aspects of existing securities laws.

CoinCenter highlighted the current dilemma many developers face:

If you raise funds by selling promises of tokens on a decentralized network that you plan to build, that’s pretty clearly a securities offering and you are obliged to comply with the applicable rules. For example, you could take a Regulation D exemption. So far so good, but what happens when you build the network and deliver tokens on it to investors? Are those tokens themselves securities? On the day your network launches is it sufficiently decentralized so that token holders are not relying on your efforts for the network’s functionality and the value of their tokens?

Under Peirce’s proposal, the SEC would provide a three-year safe harbor from application of registration and trading requirements for companies that comply with fundraising rules, demonstrate their intent to build an open network, and provide certain disclosures to ensure investor protection.

As CoinCenter notes, her proposal would provide greater regulatory certainty for network developers to fundraise without worrying about whether they can “legally deliver tokens on a decentralized network.” In addition, the system would provide increased certainty for regulators and greater protections for investors.

And perhaps most importantly, the public will benefit from the development of new unowned, permissionless networks—public goods that could now be privately developed more easily.

 

Author: Ken Chase

Freelance writer whose interests include topics ranging from technology and finance to politics, fitness, and all things canine. Aspiring polymath, semi-professional skeptic, and passionate advocate for the judicious use of the Oxford comma.

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