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SEC Commissioner Peirce Pitches Token Safe Harbor Proposal Version 2.0

CrowdfundInsider | JD Alois | Apr 14, 2021

Commissioner Peirce candid shot - SEC Commissioner Peirce Pitches Token Safe Harbor Proposal Version 2.0SEC Commissioner Hester Peirce has posted an update to her Token Safe Habor proposal.

Back in February 2020, Commissioner Peirce revealed her proposal in an effort to create a regulatory environment that supported Fintech innovation while acknowledging the unique characteristics of digital assets. Since the emergence of crypto-assets, the SEC has struggled to manage the new asset class that may have characteristics of a security while also having a utility quality. In the end, the Commission has defaulted to the decades-old Howey Test to regulate crypto and, at times, regulation by enforcement. Commissioner Peirce’s first version of a safe harbor for token offerings sought to accommodate the ability for a digital asset to morph into a utility over a period of time while creators worked on the network that used a native token.

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From the beginning, Commissioner Peirce has stated the safe harbor is a work in process, accepting feedback from industry insiders. In recent conversations, the Commissioner hinted that an update would be forthcoming and yesterday she posted version 2.0 on Github. The Commissioner has invited further comments and an open debate on the Token Safe Harbor version 2.0.

In a public statement, the new version seeks to “provide network developers with a three-year grace period within which, under certain conditions, they can facilitate participation in and the development of a functional or decentralized network, exempted from the registration provisions of the federal securities laws.” Commissioner Peirce agrees that there is a need for regulatory clarity in the space – something regularly demanded by industry participants.

Commissioner Peirce stated:

“Three significant changes mark the updated version. First, to enhance token purchaser protections, the safe harbor proposal now requires semi-annual updates to the plan of development disclosure and a block explorer. Second, in response to concerns about the lack of clarity at what happens at the end of the three-year grace period, the safe harbor proposal now includes an exit report requirement.

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The exit report would include either an analysis by outside counsel explaining why the network is decentralized or functional, or an announcement that the tokens will be registered under the Securities Exchange Act of 1934. Third, the exit report requirement provides guidance on what outside counsel’s analysis should address when explaining why the network is decentralized. The guidance is not a bright-line test, but rather attempts to strike a balance between providing a manageable number of useful guideposts while maintaining sufficient flexibility for the facts and circumstances of each network to be considered in the analysis.”

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