About the Safe Harbor Proposal

By Cjazus | Metagraphy | 17 Apr 2021


Over the last few days, a couple of things happened which encouraged me to write this post.*

  • On April 13 SEC Commissioner Hester "Crypto Mom" Peirce released Safe Harbor 2.0 (on GitHub!), a revision of her initial February 2020 proposal. The proposal would afford crypto projects in the US a three-year grace period after startup, provided certain conditions were met. The grace period allows these projects to not have to immediately register their tokens as a security.

  • Seedify.fund (SFUND) is a seed fund/incubator project I'm excited about. In their Telegram, a conversation with one of my fellow Seedify HODLers made me realize that while I can stake my SFUND to obtain a Seedify-assisted project's tokens, I can't directly participate in any IDOs or ICOs those projects may have.

How are these two things related? There is currently a haze hovering over the space containing US regulations and their interactions with crypto and crypto tokens (*cough*XRP*cough*LBRY).  It's to the point that every project selling their tokens in any way - ICOs, IDOs, Crowdsales - simply finds it easier to blacklist US residents and those of a few other countries from these offerings, therefore not having to worry about violating some regulation that may or may not be "close enough" to apply.  So no presales for me!  'MURICA.

I won't get into the specifics of what being a security means or what the Securities Act of 1933 requires of one. But the Safe Harbor's three-year window would give a crypto startup the ability to "facilitate participation in, and the continued development of, a functional or decentralized network, exempt from the registration provisions of the federal securities laws so long as certain conditions are met." (Peirce)  This means project teams now have more options to obtain the resources needed to grow their networks.  

Including selling tokens directly to retail investors.

What are the conditions laid out in Safe Harbor 2.0?

In order for a crypto project's tokens to not be considered a security, the main milestones are as follows:

  • Network Maturity (defined as sufficiently decentralized or functional) must be reached within three years after its tokens are initially sold. This is accomplished via an outside third-party that must provide attestation in a published Exit Report.
  • Numerous disclosure statements must be publicly available on a website. Some of the required information includes the project's source code, transaction history, tokenomics, and the Initial Development Team's identities.
  • Updated disclosures must be released every six months until the Exit Report is filed or the three-year period is up.

Obviously, Safe Harbor 2.0 is not official or even a finalized product.  Even if this happens the devil is always in the details, and the conditions or the metrics to measure could change between now and then.  But these conditions strike me as a reasonable balance between giving a project the leeway needed to develop itself, and regulating so that unwitting investors are not completely thrown to the wolves.  This seems like a step very much in the right direction.  Pair this document with Gary Gensler's confirmation as SEC chairman (aka that guy who taught that MIT Blockchain course) and it feels like there might be a better relationship between the US government and the crypto space coming - or at least one with more clarity.

(I know, I know, Ripple and LBRY.) 

 

Government?  Did you just say government?  Boo hiss~

We all dream of a world where our financials and our digital lifestyle is decentralized and peer-to-peer as much as possible.  Everything is in our hands, the government doesn't try to get their hands in our pockets trying to get their cut of our precious crypto.  Or in some cases, severely restricting or flat out banning its citizens from using it.

But we're not living in that world.  And we're not going to be there soon.  (If you have a working roadmap to get there, I'd certainly be interested in seeing it!)  Given that, I'll take what I can get.  A Securities and Exchange Commission with reasonable guidance, that allows for more crypto project fundraising?  That opens space to a wider amount of crypto innovation and development?  Works for me, it's certainly an improvement over what we currently have.  

Finally a note to the SEC, especially to Crypto Mom:  If Safe Harbor becomes official, I solemnly swear not to whine and complain about how you didn't protect me from myself when I dump a bag into a shit token ICO that never gets off the ground.  Promise.

 

Thanks for reading!  Please let me know how badly I did in the comments!

 

 

 


*It's my first one, be gentle!

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Cjazus
Cjazus

Sometimes writes, mostly listens. Interested in the different ways we can integrate crypto into life. (And obtaining wealth. That's good too)


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Metagraphy

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