Is CryptoMom’s 3-Year Safe Harbor Proposal For Token Sellers Good For The Crypto Industry?

The famous Securities and Exchange Commission (SEC) Commissioner Hester Peirce, also known as the CryptoMom in the blockchain community, wants crypto projects to have a real chance at being successful without worrying about US securities laws.

1/ 🚨BREAKING🚨: SEC Commissioner @HesterPierce today publicly proposed a safe harbor for token sellers building decentralized networks.

It is an elegant solution to the most complex legal challenge of this crypto era.

Thread is go.👇

— Marco Santori (@msantoriESQ) February 6, 2020

She unveiled her proposal while holding a speech at the Chicago International Blockchain Congress on Thursday, and said crypto startups should be given a 3-year period of grace since they have sold their first token, in order for them to achieve enough decentralization and pass the evaluations conducted by SEC, the Howey Test conducted by the US Supreme Court included. Here is what some notes in the proposal are saying:

“The analysis of whether a token is offered or sold as a security is not static and does not strictly inhere to the digital asset.”

This means some tokens may seem like a security at the launch, but when mature enough, they no longer appear to be one.

Peirce Has Brought Safe Harbor Up Before

It’s not the first time that Pierce has come up with the idea of a safe harbor, but on Thursday, she made her proposal official. If other SEC commissioners adopt it, crypto projects would have to conform to some strict requirements when it comes to raising funds through a token sale. Code and personal disclosures, also public notices would have to be released. This is what Peirce’s notes say about this:

“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.”

Consumer Protection Increased

In an effort to increase consumer protection, Peirce said the project’s source code, token economics, transaction history and a history of other token sales that took place in the past should also be disclosed. She added the proposal is dependent upon development teams taking action in good faith, so it can’t be available to those teams that have disqualified members for the reason of being bad actors under the securities laws. Also, projects resulted from fraud or illegal activities would not be protected, as she exactly said:

“SEC enforcement has played an important role in combating fraud in connection with token sales.”

“The safe harbor would not provide immunity from such actions.”

Exclusivity Won’t Be Offered

Projects involved can still make operations under the existing federal securities laws. However, the proposal wouldn’t apply to already operational projects, but more to those in their early development stages, so that communities and networks are getting built more easily.