The development of crypto- and investor-friendly legal frameworks in the United States continues. Thankfully for the web3 community, they have friends in high places.
A Brief History of the Token Safe Harbor Proposal
It has been almost three years since Hester Peirce, a commissioner of the U.S. Securities and Exchange Commission (SEC), released her updated Token Safe Harbor Proposal 2.0. While the proposal hasn’t made headway in its prior forms, the commissioner is not giving up.
"I think we would definitely need a 3.0 version if the government wants to keep crypto innovation alive in the U.S," she said during an exclusive fireside chat with TechCrunch at Georgetown University’s McDonough School of Business.
The Need for a Token Safe Harbor Plan
Peirce explained that she built an earlier iteration of the concept after the initial coin offering (ICO) boom of 2017, when a lot of startups launched their own tokens, and there was "not a lot of disclosure around them."
The safe harbor plan aimed to provide initial development teams with a three-year grace period during which they could participate in and create a decentralized network and be exempt from "registration provisions of the federal securities laws so long as certain conditions are met," according to a GitHub document.
Peirce’s proposal aimed to require people to make disclosures for the initial period when they were selling tokens. From there, the idea was that "if the blockchain was really decentralized, so that no one had any more information [i.e., insider information] than anyone else, the disclosures wouldn’t be necessary anymore because all the information would be out there and available to anyone."
The Challenges of Creating a Token Safe Harbor Plan
While the commissioner said she hasn’t laid out the details for 3.0 yet, she is open to people tossing ideas her way.
"I welcome ideas not only on the Token Safe Harbor, but more generally — if the SEC were to wake up tomorrow and say, ‘We want to take a more productive approach,’ what would ideas look like [and] where would we need to spend our time?" she said.
It’s unreasonable to expect a new token project to have the same kind of disclosures and legal understanding as a company that’s been around for 15 years and is doing an IPO, Peirce thinks.
"There’s just a real mismatch between the expectations that some people would like to put on these token projects and the reality," she said. "The result is, we end up in the worst of both worlds: We don’t get any disclosure and we get companies moving outside the U.S."
The Impact of Lack of Clear Regulations
Crypto’s developer ecosystem is continuing to expand globally, with 74% of developers outside of North America, according to Maria Shen, general partner at Electric Capital. As a result, the share of U.S. blockchain active developers declined to 24% last year, down from 40% in 2017, and fell 5% from the previous year, according to the firm’s 2023 developer report.
"I think the message that has been sent is that it’s too hard to build a successful business in the U.S. because of the regulatory environment," Peirce said.
The Importance of a Token Safe Harbor Plan
A token safe harbor plan would provide clarity and certainty for startups and entrepreneurs looking to build businesses around blockchain technology.
"If we can create a framework that allows these companies to operate without fear of being shut down, I think it will be a huge boost to the industry," Peirce said.
Conclusion
The development of a token safe harbor plan is crucial for the growth and success of the web3 ecosystem. With the right regulations in place, startups and entrepreneurs can focus on building innovative businesses without fear of being shut down.
"We need to create an environment that allows these companies to thrive," Peirce said. "And I think we can do it."
Future Directions
The SEC is currently exploring ways to update its guidelines for token sales. While there is no timeline for when the new guidelines will be released, Commissioner Peirce is committed to making progress.
"We’re working hard to create a framework that works for everyone," she said. "And I’m confident we can get it done."
As the web3 ecosystem continues to evolve and grow, one thing is clear: a token safe harbor plan is necessary for its success. With Commissioner Peirce at the helm, there is hope that the SEC will finally provide the clarity and certainty that startups and entrepreneurs need to build successful businesses.
Timeline of Events
- 2017: The initial coin offering (ICO) boom takes place, with many startups launching their own tokens.
- 2019: Hester Peirce releases her updated Token Safe Harbor Proposal 2.0.
- 2020: Commissioner Peirce is open to people tossing ideas for a token safe harbor plan.
- 2023: The SEC explores ways to update its guidelines for token sales.
Key Players
- Hester Peirce: Commissioner of the U.S. Securities and Exchange Commission (SEC).
- Maria Shen: General partner at Electric Capital.
- Jacquelyn Melinek: Senior Reporter, Crypto at TechCrunch.
Additional Reading
For more information on the web3 ecosystem and the importance of a token safe harbor plan, check out these additional resources:
- "The Future of Blockchain Regulation" by Hester Peirce
- "Web3: The Next Generation of the Internet" by Maria Shen
- "SEC to Update Guidelines for Token Sales" by Jacquelyn Melinek
