As has been widely reported, Hester Peirce, a Securities and Exchange Commission (SEC) commissioner dubbed “CryptoMom,” has proposed the idea of offering a ‘safe harbor’ to Initial Coin Offerings so that some crypto tokens are not treated as securities. This relief, however, would be time-limited to guard against reliance on the safe harbor by ICO promoters without a workable plan to build operational networks.
Ms. Peirce echoed these remarks again at the International Blockchain Congress in Chicago, where she proposed a three-year “grace period” for cryptocurrency startups to tweak their token-based fundraising models in new directions. As the name implies, crypto tokens meeting specified criteria could be issued more freely before the SEC determines whether they need to comply with the federal securities laws.
An ICO made in reliance on the safe harbor would have to comply with certain disclosure requirements. For example, any offering must provide clear details about the source code and token functionality, including the mechanisms for changing holders’ rights and explaining how funds are to be used—before the issuer could qualify for this exemption.
We believe that such an outcome is unlikely, given the position of more senior staff at the SEC, as well as those voiced previously by the heads of complementary regulatory bodies in the US, including the CTFC and IRS, among others. Furthermore, given the scrutiny that some large-scale token and Blockchain projects are facing, such as Telegram’s TON Network, as well as the high rate of lawsuits and prosecutions of previous Initial Coin Offerings, it is unlikely that the chief securities regulator in the US will change its position significantly to give token projects more room to grow with a heavy regulatory burden.