SEC Commissioner Hester Peirce’s Safe Harbor for Digital Tokens now enjoys some legislative support.
On October 5, Patrick McHenry, a senior member of the House Financial Services Committee, introduced the Clarity for Digital Tokens Act of 2021.
The bill would adapt the Securities Act of 1933 to establish a three-year safe harbor for token development teams to offer those tokens for sale without full registration as a securities offering provided the network decentralized during these three years.
Under the bill, token issuers would have to impose industry-specific disclosure requirements. These include the source code, development plans and “information explaining the launch and delivery process, including the number of tokens to be issued in an initial allocation, the total number of tokens to be created, the release schedule. of tokens and the total number of tokens in circulation. “
Development teams seeking to use the Safe Harbor should also file exit reports demonstrating sufficient decentralization.
The Safe Harbor is the statutory version of a long-standing proposal by Hester Peirce of the Securities and Exchange Commission. After the initial coin supply boom of 2017-18, the SEC stepped up its scrutiny of token issuance, establishing the expectation that issuers register their offers with the commission.
Based on comments from SEC management, especially Bill Hinman, many crypto development teams have always seen a way to turn centralized token offerings into decentralized networks that no longer need to register. with the SEC, whether as an issuer or under an exemption.
While Peirce’s framework has not gained momentum within the SEC, passing legislation in Congress can change all of that. Leadership from key industry advocates, the Blockchain Association, the Coin Center, and the Association for Digital Asset Markets, have expressed support for McHenry’s bill.
The bill comes just half an hour before the Financial Services Committee’s hearing with SEC Chairman Gary Gensler. Also this morning, Representative McHenry issued a letter to Gensler, which said “You have made a series of disturbing and seemingly contradictory public statements regarding crypto assets and other innovative technologies.”
In the letter, McHenry asked for answers to a series of questions about the SEC’s work with crypto, particularly its expectations for cryptocurrency and stablecoin exchanges. In opening remarks released ahead of today’s hearing, Gensler repeated a sentiment that has become his Free Bird:
âMany platforms contain dozens or hundreds of tokens. Although the legal status of each token depends on its own facts and circumstances, the probability is quite low that with 50, 100, or 1,000 tokens, a platform given form has no title. error: As long as there are securities on these trading platforms, under our laws they must register with the Commission, unless they can benefit from ‘an exemption. “
While the House Financial Services Committee is teeming with crypto advocates, Patrick McHenry’s role as leader of the Republicans on the committee indicates greater momentum behind such legislation. While many bills to clarify the regulation of cryptocurrencies have been introduced – in the Financial Services Committee and elsewhere – most have languished.
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