The U.S. SEC’s Proposed Safe Harbor for Token Offerings: Fostering Blockchain Innovation Through Proper Regulation and Policies
摘要： There is a growing wave of politicians and regulators in the United States working to provide regulatory flexibility to the blockchain and cryptocurrency industry, which is currently bogged down by rules that are difficult for smaller companies to adhere to because of their complexity and costs. Recently, there have been some developments with the U.S. Securities & Exchange Commission (SEC) to begin relaxing rules for cryptocurrency projects.
There is a growing wave of politicians and regulators in the United States working to provide regulatory flexibility to the blockchain and cryptocurrency industry, which is currently bogged down by rules that are difficult for smaller companies to adhere to because of their complexity and costs. Financial rules are made for the large financial institutions of Wall Street, which means that many of the smaller, yet fast growing blockchain companies have difficulties remaining legally compliant. This has resulted in a number of American founders of some of the world’s top projects, such as the founders of Bitmex, or Block.one/EOS, or Bitcoin Cash, moving overseas to other jurisdictions where regulations are simpler and more flexible. Also, American-led projects, such as Facebook’s LIBRA Association, are also establishing in locations outside of the United States to find more blockchain and cryptocurrency friendly legal environments.
Recently, there have been some developments with the U.S. Securities & Exchange Commission (SEC) to begin relaxing rules for cryptocurrency projects. Much of this has been led by a couple of the Commissioners at the SEC, most notably Commissioner Hester Peirce, also known as “Crypto Mom”.
My firm was part of a delegation that brought Commissioner Peirce to Singapore in July of 2019 for meetings with Monetary Authority of Singapore (MAS), and other regulators and industry leaders in South East Asia. During her visit, Commissioner Peirce saw how a highly conservative jurisdiction with a well-formed and sophisticated financial industry such as Singapore, could safely regulate tokens and their offerings through permissive guidelines to promote a dynamic blockchain industry. Singapore is seen as a leading hub of blockchain innovation because of a top-down approach with sensible regulation for tokens. The same could be said for similar jurisdictions including Switzerland and Japan. Switzerland, on a per capita basis, has 5 times the blockchain startups that the United States does, and attracts some of the best international (including U.S.) projects to domicile there. At the end of this trip, Commissioner Peirce publicly announced her support for a Safe Harbor for token offerings in the United States.
Rule 195, proposed last month by Commissioner Peirce, is the next iteration of that Safe Harbor. This framework includes more detailed requirements for reliance and a new three-year grace period for start-up blockchain projects that are offering tokens with the purpose of being decentralized. It is intended to provide, in her words: “rules that well intentioned people can follow….to enable them to pursue their efforts in confidence that they are doing so legally.”
Under the Safe Harbor, project teams issue tokens and they are also required to actively seek secondary market liquidity by listing on an exchange, which Peirce identifies in her proposal 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.”
U.S. federal securities laws are a disclosure-based system, and Peirce reconciles that with the realities of projects issuing payment and utility tokens while balancing the need for material information to be publicly available for purchasers of the token.
Peirce and others at the SEC have clearly spent considerable time becoming deeply knowledgeable about the practicalities and needs of developing token-based distributed networks from inception to their ultimate functionality or decentralization, and reconciled how that can be tailored and dovetailed with the disclosure-based nature of the regulator’s framework. The Safe Harbor requires disclosures about the project, initial team members, and their token holdings and significant sales. It is thoughtful enough to also offer relief for the entire cryptocurrency ecosystem, such as providing trading platforms the benefit of the Safe Harbor if they facilitate trading of the tokens.
The SEC’s antifraud provisions still apply to token offerings relying on Rule 195. This gives regulators an enforcement club to penalize fraudulent behavior including material omissions or misstatements in disclosures, or similarly deceptive conduct. This acts as a guardrail for the Safe Harbor, as does the requirement that, if a network is not sufficiently decentralized or functional within the three year grace period, the token would require registration with the SEC, which is an extremely difficult burden for early-stage companies to meet and should motivate them to make the best use of their grace period.
The proposal is not perfect. It has some holes that Commissioner Peirce acknowledges need to be filled. For instance, we need to understand how development teams can be compelled further to keep disclosures up to date and timely, and provide information in a timely manner, including sales by team members of five percent or greater of her/his tokens.
RockTree LEX has been working with the SEC to help develop this Safe Harbor so that it can be improved to the point it is ready to be released as a formal rule. For example, it is our opinion that the projects should provide quarterly or yearly attestation by a member of the development team to the exchanges that are also relying on the Safe Harbor to trade the token, and a requirement that the exchanges delist the token if that attestation is not provided on time.
Ideally, for innovation to thrive, we could lean towards regulation taken up by Japan, Switzerland and Singapore; such as proposed in the U.S. Token Taxonomy Act introduced by Congressional Representatives Darren Soto (D-FL) and Warren Davidson (R-OH), which seeks to exclude digital tokens from being defined as “securities” by amending U.S. federal securities laws (among other things). This proposed law recognizes that securities law frameworks for regulating utility and payment tokens do not work. However, the Token Taxonomy Act is only one of the 27 different proposed laws related to blockchain and cryptocurrencies currently logjammed with Congress and the timeline required to get it passed (if it ever will be passed), is an eternity for the blockchain industry.
As the U.S. regulators and Congressional members remain logjammed with bureaucracy and overregulation, an opportunity has emerged for other nations to implement flexible regulations in order to utilize blockchain technology across various industries and boost economic growth. “Crypto Mom” and others are quickly waking up to that fact and have now released thoughtful rules that understand the needs of token projects to flourish.
Omer Ozden is CEO of RockTree LEX, a multijurisdictional legal and professional services platform focused on the blockchain industry, along with its investment fund, RockTree Capital. With its investment partners, Huobi, ZhenFund and DFund, RockTree’s mission is to unite the two largest blockchain markets: Greater China and North America.