First, the background info:
Hester Peirce, Commissioner of the SEC, proposed Thursday at the International Blockchain Congress in Chicago, a three year “safe harbor” plan to allow crypto projects some time to develop their networks without being subject to the current strict SEC regulations governing securities.
Many believe SEC Chairman Jay Clayton has long been standing in the way of innovation in the space, by taking a hard stance against new tokens.
He “has repeatedly said the industry requires aggressive oversight because of concerns it’s rife with fraud. The SEC has accused multiple coin issuers of selling unregistered securities during his tenure.” (Bloomberg)
Dubbed “CryptoMom” by the blockchain community, Peirce offered her plan up as a way for developers working on credible projects to be able to grow into stable, decentralized networks, allowing three years from their first coin sales until such period ends and those projects can then start to be evaluated and determinations can be made about whether those projects should be regulated as securities or not.
This is major, if it comes to fruition.
This lifting of the red tape is being proposed to help foster innovation in the space, because many new projects have difficulty getting off the ground with the current securities laws. It will result in the ability of new coins to be traded on the markets, gaining exposure, larger adoption, active communities, and easier roadmap adherence, with less fear of government interference and fines in the critical beginning stages.
Will this new plan, if officially adopted, affect already established coins/projects?
No. If a project is already operational and/or has already started raising funds via token sales, those projects will continue to operate under the classification and regulations assigned, but that does not mean that the securities designation is permanently affixed to any project. Examples given were ETH and EOS, which were considered securities originally, when the tokens launched, but after the projects matured enough, they could be classified as non-securities tokens. Peirce hopes her safe harbor period would allow more projects the breathing room to mature, while being fleshed out into fully decentralized (and thus safer) investment tokens.
Will this deregulatory safe harbor period make it easier for Shitcoins and shady teams to hurt consumers?
No. Although the plan will ease up on new projects for the initial 3 year period, it would also implement several rules designed to protect investors and consumers:
- The development team should disclose “the names and relevant experience, qualifications, attributes or skills” of each member, as well as how many tokens each member holds and how many they may earn through founders’ rewards or similar programs.
- Source code, transaction history (and a description of how an individual can independently search transaction history), token economics, roadmap and a history of past token sales all be disclosed on a free and publicly accessible website.
- Projects still face actions for fraud and other illicit activities. “SEC enforcement has played an important role in combating fraud in connection with token sales,” [Peirce] said. “The safe harbor would not provide immunity,” but will “ensure that the SEC can bring suit against a team that sets out to defraud token purchasers by materially misrepresenting or omitting key information.” (Yahoo Finance)
Why is all this significant?
Many believe that if enacted, the three year safe harbor is going to usher in (or help to extend) a huge new bull run for the Altcoin market in general, by helping new coins to grow into viable products, with mature, decentralized networks and communities. While the primary benefits will only be applicable for projects in their initial development stages, it will likely offer other indirect benefits.
Competition is good for the consumer.
Since new tokens will be publishing transparent info about their developers background and coin holdings, as well as source code, other tokens that want to remain competitive and relevant will likely follow suit.
Many projects already adhere to these practices. But those who don’t, may see declines in consumer and investor interest. The safe harbor proposal will increase competition not only amongst newcomers into the space, but also between those projects and the “old guard”, hopefully increasing transparency in an industry that has had more than its share of stories stemming from shady practices.
In order to become viable, the playing field will be filled with developers who strive to be transparent and legitimate. Coins designed only to enrich their devs will not get the same traction as those coins who strive to offer something of genuine value to investors.
Successful projects will increase media attention.
Aside from Bitcoin, Ethereum, Libra, and a few others, many regular joes who currently have no interest in crypto are still largely unaware of the vast majority of tokens. They will have an increased exposure to tons of new projects, coins, dapps, and communities, only furthering a more widespread adoption of cryptocurrency as a whole.
Over the next few years, many unique projects will come around, and the new media attention might serve as a catalyst to bring more everyday citizens into the crypto space, which may cause more volatility in the short term, but hopefully in the long term will yield more stable prices and a trend towards utilization, as opposed to speculation.
Media coverage is not necessarily the most important thing for mass adoption, but it sure doesn’t hurt. And the more people who hear positive coverage on the expanding crypto space, the better.
What are your thoughts about Pierce’s safe harbor proposal? Do you think it will be enacted? What effect do you think it will have on the markets?
In this humble guy’s opinion, the future looks bright.
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